Aon Hewitt has expanded its UK fiduciary management business to include the purchase of bulk annuities, as consultancies and investment managers continue to take advantage of the growing markets.
The consultancy has developed a service called ‘implemented annuities’, allowing schemes to delegate investment strategy, the sourcing of an insurer, and the transaction of a bulk annuity arrangement.
The new operation, which sits inside the firm’s fiduciary management business headed up by partner Sion Cole, has signed four of the top five insurers in the bulk annuity market to the platform, the firm said.
The UK’s bulk annuity and fiduciary management markets have both seen significant growth in recent years.
Fiduciary management grew from £20bn (€25bn) in assets under management in 2008 to close to £60bn in 2013, according to KPMG.
While more linked to market conditions, data from LCP showed £7bn of bulk annuity transactions had occurred over 2013, while the first six months of 2014 alone saw £6.5bn.
This has resulted in providers shifting business strategies to include the services. Aon Hewitt is the second company in as many weeks to offer a more holistic solution.
The funds invest in liability-driven investment (LDI), credit, and growth strategies entirely designed to take schemes towards buyout funding level, while closely matching insurers’ desired assets.
Once reached, pension schemes are incentivised to purchase a bulk annuity package with LGIM’s sister insurer Legal & General Assurance Services (LGAS).
Aon Hewitt said schemes currently delegating investment decisions could add planning, legal and commercial negotiation, and implementation via the service.
Pension schemes would also have access to ‘annuity ready’ investment funds.
Senior partner and head of risk settlement, Martin Bird, denied the solution complimented LGIM’s new offering, as they remained different and independent.
“They are very different things. We are independent advisors so we want to advise our clients on the best solution in the market, including LGAS,” he told IPE.
“Many clients invest in all different types of LGIM funds, in particular the bond and LDI ones.
“It is quite possible this would be the right fund to purchase an annuity. That could be with LGAS, or it could be with another insurance provider.
LGIM’s new offering allows schemes to transact with LGAS by waiving transaction costs to shift assets, saving around 50bps off the average bulk annuity purchase.
“From the client’s perspective, and from ours,” Bird said, “it does not matter what they are invested in today, and it doesn’t matter who will provide the insurance policy.
“It is up to the client to decide who they want to transact with and the terms and price to be prepared to do that.”
Bird also said the new service fits in well with Aon Hewitt’s ‘Pathway’ offering launched earlier this year.
This offers clients standardised contract terms for bulk annuity transactions pre-negotiated with the market’s main providers.
Earlier this week, the bulk annuity market continued its growth as the UK Unilever and Panasonic schemes both announced transactions.
Consultancy LCP said it expected over £1bn worth of deals arranged and announced in the last three months of 2014.