This paper has been sent to Pension PlayPen to accompany the presentation given by William McGrath and Con Keating on Tuesday 2nd September. The video and slides of this presentation are available on this link. This is the final piece in the jigsaw. It is from C-Suite- owned by William McGrath.
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PRT Industry Papers and Articles
| The ABI case to Government appears to be weaken the solvency regime and we will put more into UK productive assets. The Oxera report, commissioned by ABI, concludes that life insurers should be left alone as they are doing a great job. The market is very profitable but there is no case for CMA intervention.
PIC’s paper, aimed at MP’s, emphasises buyouts offer “absolute confidence” to members. What “pension protection” means in their view is given the cost of falling into PPF, it’s worth giving away for nothing discretion out of which the real risk from inflation could be addressed. PIC’s paper misrepresents the PPF reductions. The LCP paper is just one of the sector’s typically sugary endorsement of the risk transfer market. It is an endlessly competitive world. Neither PIC nor L&G address inflation reducing pension values and that discretionary payments could address the risk if the scheme ran on. |
ABI Article
The Bulk Purchase Annuity Market: A Quiet Powerhouse in the Pensions Ecosystem | ABI
The article states that ABI commissioned a report by Oxera
“to carry out independent analysis of this market’s evolution and the policy considerations that could shape its future.”
It concludes that all is well. There is competition. Any intervention through backing run-on or using PPF to be a consolidator is completely unnecessary. ABI and Oxera do not address member interests in having a share of value to address the sharp decreases in real value of pensions which has recently occurred.
Oxera Report
Oxera report – Bulk Purchase Annuity market – 21.07.2025.docx
PIC Benefits of Buyout report for MP’s
The benefits of buyout – Pension Risk Transfer ‘PRT’ explained – PIC
LCP Risk Transfer Report 2025
LCP pensions risk transfer report 2025
Aon Risk Settlement Bulletin Q3 2025 – Competitive Pricing – Aon report
Like nearly all actuarial consultants and investment advisors, Aon is happy to back the cycle of derisking and passing money over to life insurers.
The Aon graphic highlights PRT deals are priced close to gilts. What the MA spread increases and risk margin cuts mean for life insurers’ profits is not addressed.
L&G Demystifying Pension Buyouts
Legal & General | Demystifying pension buyouts
Rolls Royce / PIC – Scheme Buy-in
PIC completes £4.3 billion full buy-in of the Rolls-Royce UK Pension Fund – PIC
| The Rolls Royce explanation of why a deal with PIC is in member interests assumes that a buyout offers much better protection to members because of their capital requirement and that is why all that surplus disappears.
Without any numbers the Chair of rolls Royce explains to members that it is quite clearly in their interests to have a pension from PIC (shortly to be owned by Athora rather than by a Swiss family and sovereign wealth fund) rather than sticking with the long time sponsor. |
Press Articles: PRT Industry Opposing Use of Surpluses
Henry Tapper blog: references and links to a number of relevant articles
The Pension Security Alliance response to proposed Government pension reforms
DB pension reforms put peoples pension incomes at risk
| That surpluses might go to anyone but a life insurer infuriates the Pension Security Alliance (lead by PIC, Just and John Ralfe). |
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Critique of PRT industry
| Whether the arrival of private capital into pension markets is for the best has some doubters.
That is before you get to the legal ruling on Pension Risk Transfers in USA from major corporates to Apollo, and questions about whether such steps are actually in members’ best interests. They may not be open and shut cases (see piece by Encore Fiduciary FSCS is unfunded, untested, no Government guarantee back stop. Notes on funded re and Solvency Triggered Termination Rights do suggest PRA has less than the complete peace of mind that life insurers say is provided. See PRA letter to life insurers – below. |
Gareth Truran – Bank of England
Letter to life insurers July 2025:
Solvency-triggered termination rights clauses in bulk purchase annuity transactions
Speech to BPA April 2025:
Overseeing BPA growth safely – Speech by Gareth Truran | Bank of England
Henry Tapper blog article: Apollo ownership credentials
The article references and links to the following articles in the Financial Times and Bloomberg
Financial Times article
Apollo’s insurer points finger at rivals over potential conflicts
Apollo has hit back against criticism of the close ties between its asset management arm and its in-house insurer. It noted that KKR, Blackstone and Brookfield have larger proportions of related party transactions.
USA Regulators are scrutinising the ties between asset managers and insurers as private equity groups have piled into the sector.
What constitutes “affiliated” is under debate.
Bloomberg Article on Apollo
Private capital firms are going to remarkable lengths to squeeze more returns for the regulated insurance entities.
Private capital has been buying up life insurers and annuity providers. Using the cash the invest in private credit can bring capital charges. The approach is then packaged into a range of assets in a Bermuda based vehicle. It then sells bonds with investment grade credit ratings and long lifespans. A 40 year final maturity profile is longer than that of the asset used as collateral – so they will need to be swapped out.
How well the approach fits with UK matching adjustment and in particular the incoming “Matching Adjustment Investment Accelerator” (MAIA) is an issue which PRA will be contemplating. MAIA enables insurers to self-certify an asset meet regulatory requirements for 2 years.
Academy of Life Planning: Article by Steve Conley
💣 The Bermuda Backdoor: Where Your Pension Goes to Vanish – Academy of Life Planning
Encore Fiduciary
The campaign of PRT insurer disinformation continues. Yesterday saw the publication by PIC of a note entitled: ” How does QT feed into the DB pension scheme funding levels debate?” It predicts substantial harm from the Bank’s reversal of QT. Perhaps needless to say, it offers “The best way to protect against this is buyout where a pension scheme purchases an annuity policy that covers all of its liabilities.” and “With the current pension scheme funding levels this is an ideal time to explore buyout.”
It seems that now being owned by private equity giant Apollo comes with pressure to write ever more business.
It even suggests but does not actually offer a carrot: “It also allows pension insurance companies such as PIC to invest at scale in infrastructure and housing delivering significant social value.” That of course would be at odds with the interpretation of the purchase of life companies by private equity as tame sources of funding for their other leverage activities.
In the light of the recent further rises in Gilt yields, will the DWP and TPR urgently review their DB funding code. It does now appear that following the Code will actually increase the risk of pension scheme failure, particularly for mature schemes.
At the end of a pension scheme lifecycle it is the market value of the scheme’s assets that determines it capacity to pay the pensions as they fall due. The fall in the realisable value of Gilts associated with the rise in yield means that the pool of assets to be sold to pay the benefits has shrunk; with current sales having a consequential knock-on future income magnifying the problem. To the extent that the fall in Gilts (and bonds to a lesser extent) has not been offset by surpluses arising from rises in other asset classes (? equity values), further deficit recovery contributions may be appropriate in a closed scheme.
If we take forward the discussion above, and the BPA insurers continue to price against gilt yields the insurer is taking on substantially more risk. This must surely make them more cautious in fully assessing both the risks they are taking on and the opportunities for investing with returns in excess of the pricing yield. This is likely to slow down the completion of deals putting further risk on the pension scheme. There also appears to be evidence above that the insurers are considering ever more risky asset classes which appears to run counter to the argument that a risk transfer is reducing the risk to Members, the Employer, and any residual pension scheme with buy-in policies.
The obvious solution for an employer faced with these issues is to seek to extend the life of the pension scheme by building up the asset base by diverting the contributions lost to DC pots into the DB Pension Fund. The risks to members (both previous employees with accrued benefits and current employees now accruing DB benefits) should thereby be reduced.
Two excellent comments to kick off the morning!
I believe that BPA insurers actually price transactions against interest rate swaps rather than gilts – not that this technically makes much difference – 30 year swap this morning 5.03% versus gilt of 5.69%.
For those wishing to take solace from the findings of the Oxera report – there are both major and minor flaws in the analysis – for example, at no point do they recognise that scheme members in most (contributory) schemes make material contributions to the scheme fund.
Oxera only operate a money purchase scheme for their own staff, so perhaps no surprise their understanding of DB schemes seems poor.
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