A newly created, 10-strong team of pension professionals with experience in the buy-in/buy-out market is now actively working with Employee Benefit Consultants to highlight to trustees of DB schemes the potential benefits of medical underwriting through more competitive pricing of de-risking solutions.
Just Retirement Defined Benefit Solutions is initially focusing on helping trustees of small and medium-sized schemes, those with up to approximately 300 pensioner members, many of whom are actively investigating ways to secure benefits payments by purchasing an insured solution at an attractive price.
Tim Coulson, director of Defined Benefit Solutions at Just Retirement, said the launch had been welcomed by EBCs keen to see new entrants bringing innovation and options to a growing market.
“Big deals may capture the headlines but the reality is that it is modest-sized schemes that make up the majority of the 6,400 schemes tracked by the Pension Protection Fund,” he said. “The average buy-in/buy-out deal is for around £20 million. This part of the market has multi-billion growth potential if compelling solutions can be offered.
“Smaller schemes face exactly the same problems as bigger ones but are not well served by the current providers for whom bigger deals are more lucrative. However, our underwritten solution can generate larger cost savings for more focused memberships compared to larger schemes where life expectancy will typically be closer to average.”
Tim Coulson said that Just Retirement has accumulated detailed knowledge of how health and lifestyle issues impact on life expectancy. “This extra information allows us to understand and price the risk more accurately and, in many cases, to offer more cost-effective solutions,” he said.
Just Retirement will work closely with the EBCs and trustees to ensure a streamlined process for gathering information from members.
“We have developed an approach to undertake a detailed underwriting assessment of the member,” said Tim Coulson. “Typically we wouldn’t underwrite all or even most of the members, but instead focus on the health status of a small number who may account for a relatively large chunk of the overall liabilities.”
Medical underwriting is already commonplace in the individual annuity market where it accounts for more than a half of ‘Open Market Option’ annuity purchases and is becoming more sophisticated each year as providers such as Just Retirement develop better models of the complex interplay between health and life expectancy, taking into account changing lifestyle trends and medical advances.
“Last year new records were achieved with the de-risking market totalling £12 billion but that is still less than one per cent of UK pension schemes’ total liabilities which shows the huge scope for further growth,” said Tim Coulson. “The pressure on DB schemes to de-risk is already intense and is only going to increase as can be seen from the proposal to impose Solvency II-type regulations in the DB arena.
“Ultimately the launch of our solution is about helping employers and trustees to protect the strength of their schemes and therefore member benefits by securing the liabilities for the lowest possible price.”
