A comment on a recent blog on the exclusion of people from insurer’s reckoning for growth. The argument that I take up from others is that it they run away from people, life insurers can only rely on cashflow. Pensions Oldie replies. He feels that the deals done to buy UK life insurers will not prove profitable over time
I think the real problem will be cashflow.
The bulk annuity market is drying up with average deal sizes shrinking and it does have a finite limit in any event, irrespective of whether employers can continue to be persuaded that run on is not in their interests.
The residual personal annuity market is being challenged by the requirement for DC mastertrusts to offer decumulation products.
The excess cash flow generated by Solvency UK investments over gilt yield based policy prices has been eroded.
The real question is will be owners be prepared to meet increased capital requirements?
In some respects private equity helps in the short term as distributions can be cut, but how will the target exit prices be achieved and will manager valuations be believed?
I think this question is not being properly addressed. Nor do I think the PRA has properly pronounced on the risks to British pensioners if private equity withdraws from our life insurers. What is the alternative in terms of ownership? Is there a price acceptable to the private equity firms that makes the market for our life insurers liquid?
Put another way, are our lives being insured against us living too long on a basis that cannot be sustained. What is the alternative?
The bulk annuities cannot be repurchased by pension funds, the money has transferred into a sump.
My simple brain continues to ask whether we are thinking through the future of a trillion pounds worth of pension liabilities as lines upon the balance sheet when those numbers represent the futures of people who have been promised pensions to the end.
We cannot commoditise people’s futures, there must be a voice that stands not just for pensioners but for the financing of Britain that has depended on the investment of their pension funds. I had thought this was the NAPF but it retreated to the Pension and Lifetime Savings Association and now a further stage from Pension Funds, it’s called Pensions UK.
The Pension Fund, held by trustees, invested mainly in the UK and created by workers and their employers can be replicated. But it cannot insure people’s future benefits any more than the state pension can. The amount of pension paid is dependent on the capacity to meet the cost – the cashflows. We will continue to meet promises of increases to the state pension by the triple lock so long as this is seen as affordable. Pensions under CDC will be paid (whether as core pensions or as conditional indexation to DB benefits) as what we can afford.
As Pensions Oldie points out, we pay in pensions what we can afford to pay. Without our pension funds, the private sector is relying on financial services it does not understand. There will come a time when we will want our visible pension funds back again and if they’re gone- they’re gone.
It appears that Trustees of DB Pension Schemes of larger employers who have purchased buy-in policies do have the protection of the FSCS compensation if the insure should fail. As the claimant would be “an occupational pension scheme insofar as members’ benefits are not money-purchase benefits; and the employer is not a large company, large partnership or large mutual association”.
My reading of the FCA Handbook:
COMP 4.2 Who is eligible to benefit from the protection provided by the FSCS?
COMP 4.2.1 17/03/2026 R
An eligible claimant is any person who at any material time:
(1) did not come within COMP 4.2.2 R; or
(2) did come within COMP 4.2.2 R, but satisfied the relevant exception in COMP 4.3.
[Note: See COMP 4A.2.2G about special cases in COMP 12A.1 (Trustees and pension schemes) and COMP 12A.3 (Collective investment schemes).]
NB: COMP 12A.1 has been deleted and in any event specifically referred to Stakeholder pension schemes.
Persons not eligible to claim unless COMP 4.3 applies (see COMP 4.2.1R)
COMP 4.2.2 17/03/2026 R
…
(4) Pension and retirement funds, and anyone who is a trustee of such a fund
….
COMP 4.3 Exceptions: Circumstances where a person coming within COMP 4.2.2R may receive compensation
Eligibility to claim in specified circumstances
COMP 4.3.8 01/04/2018 R
The FSCS may treat a person who comes within category (7) or (12) of COMP 4.2.2 R as eligible to claim compensation where:
(1) this is desirable to achieve the efficient performance of any of its functions, including without limitation; to achieve the efficient payment of compensation; and
(2) treating these persons as eligible to claim compensation would, in the opinion of the FSCS, be beneficial to the generality of eligible claimants who will be affected by the action in (1).
Trustees of pension schemes
COMP 4.3.10 17/03/2026 R
A person is eligible to claim compensation for claims where they are a trustee of:
(1) a personal pension scheme;
(2) a stakeholder pension scheme (which is not an occupational pension scheme);
(3) an occupational pension scheme insofar as members’ benefits are money-purchase benefits; or
(4) an occupational pension scheme insofar as members’ benefits are not money-purchase benefits; and the employer is not a large company, large partnership or large mutual association.
I stand to be corrected as this is my own reading of the FCA Handbook. It also appears that the position (certainly that with stakeholder schemes) changed with revisions dated 17/3/26
Sorry – A very critical NOT was edited out of the first sentence above. It should have read (with a bit of clarification):
It appears that Trustees of DB Pension Schemes of employers with a turnover over £1M who have purchased buy-in policies do NOT have the protection of the FSCS compensation if the insure should fail.