FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
87% o dfnd bnft pnin s hms a e coe t nw mme s ad ic esnl t ftr a c ul (%) OF DEFINED BENEFIT PENSION SCHEMES ARE CLOSED TO NEW MEMBERS AND INCREASINGLY TO FUTURE ACCRUAL (%)
100
80
Providing security and peace of mind
60
40
20
2018 2019 2020 2021 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Closed to new members (open to benefit accrual)
Source: The Purple Book 2021, PPF Closed to future accrual
Clara-Pensions has stated they will serve as a bridge to Buy-out for schemes with weak or insolvent sponsors and particularly those exiting the pension protection fund assessment. So schemes they secure will eventually come to the insurance market. Not all superfund models may target Buy-out, so these would be competitors for parts of the market we target. However, we believe the scale of the market and strength of demand for “gold standard” insurance solutions will mean that trustees and their consultants will continue to compete for insurer attention. The continued attractiveness of pricing offered by insurance companies will be impacted by the availability and ability of insurers to secure high-yielding illiquid assets such as infrastructure debt and lifetime mortgages. The government’s reform of the financial services legislation, Future Regulatory Framework (“FRF”) Review, could have a positive impact in making it more efficient and attractive for insurers to invest in a range of illiquid assets. Heightened government, regulatory and fiduciary focus alongside consumer activism has pushed environmental, social and governance (“ESG”) considerations up the agenda for UK defined benefit pension schemes. With new regulations for climate reporting introduced with the Pensions Schemes Act 2021, we expect more trustees considering de-risking to seek assurance that ESG considerations underpin the asset choices in insurers’ investment portfolios. customers to convert some or all of their accumulated pension savings into a guaranteed lifetime retirement income. The solution provides people with peace of mind from the security of knowing the income will continue to be paid for as long as the customer and, where relevant, for as long as they or, typically, their spouse, lives. In the UK, GIfLs traditionally offered an income payable without reference to the individual’s health or lifestyle, and were differentiated only by reference to a limited number of factors such as age, premium size and, prior to 31 December 2012, gender. INDIVIDUAL RETIREMENT INCOME MARKET Guaranteed Income for Life (“GIfL”) products are bought by individual An individually underwritten GIfL takes into account an individual’s medical conditions, personal and lifestyle factors to determine their life expectancy. People who are eligible and purchase an individually underwritten GIfL typically achieve double-digit percentage increases in income compared to purchasing a GIfL which is not individually underwritten. CURRENT MARKET AND OUTLOOK Pension customers are encouraged to compare the GIfL offer provided by their existing pension company to those offered on what is the open or external market. In March 2018 the Financial Conduct Authority (“FCA”) introduced rules requiring pension companies to provide customers with a comparison to best income available from the external market alongside the quotation from the incumbent firm. These requirements were subsequently strengthened and from January 2020 all firms are required to provide a medically underwritten comparison where a
E p ce got i D d -r sig tascin (£b) DB DE-RISKING TRANSACTIONS (£BN)
50
40
30
20
10
2011 2012 2013 2014 2015 2016
2017 2018 2019 2020 2021 (forecast)
Buy-in/Buy-out Source: Just analysis, WTW
Backbook acquisition
2,500 EXTERNAL GIFL MARKET (£M)
2,000
1,500
1,000
500
2015
2016
2017
2018
2019
2020
Source: Just analysis, ABI
Regulation by TPR is outside of the insurance regime and so these new consolidators would not be subject to the more robust capital requirements of the Solvency II regulations. If these new arrangements are regulated as proposed, they would provide a lower cost solution to a Buy-out of liabilities for some pension schemes, albeit with reduced protection for members compared to an insurance solution. This new superfund regime could provide additional competition for parts of the market we target. This won’t be clear until the government has introduced legislation to replace the temporary guidance published by TPR. The first superfund, Clara-Pensions, completed the TPR assessment process in late 2021 and announced they would be ready to transact in 2022. They have been cleared as a provider but are yet to have a transaction approved. At the time of writing, no other superfund has been cleared as a provider.
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