Pension professionals call for standardisation of bulk purchase annuity processes

The Society of Pension Professionals (SPP) is calling for cross-industry collaboration to standardise streamlined bulk purchase annuity (BPA) processes to increase efficiency in the process.

In February 2024, the UK’s Department for Work and Pensions (DWP) said in a consultation on ‘Options for DB Pensions’ that there were difficulties for smaller pension funds in obtaining quotations from insurers. This has mostly been solved by insurers coming up with streamlined processes and new insurers joining the market and providing additional capacity.

However, despite the thriving market, challenges remain. According to SPP’s latest paper – Less friction, better transfers: creating a more agile risk transfer process – a particular challenge is the differences in data and information requirements between insurers. This, SPP said, can put pressure on schemes and their advisers.

It pointed out that the templates used by insurers for smaller schemes are “very different”, particularly for benefit definitions as opposed to data, and alignment with the benefits provided by the scheme can be a challenge.

It explained that differences in templates for streamlined processes can not only reduce efficiency for trustees and their advisers but also increase the risk of inconsistencies between the scheme data and benefits and those that are insured.

SPP pointed out that from a contractual perspective, the format of standard terms can also differ, including the extent to which features are included in the terms, rather than the accompanying data and benefit files.

It added that requirement from some trustees for pension funds to use a pre-determined legal adviser for the standard terms in the contract, with the scheme’s regular adviser covering the individual features of the benefit specification, explaining that there being two separate legal advisers, can lead to a disconnect, and a risk of issues slipping between the different sets of advisers.

Standardised approach

SPP suggested that a more standardised approach to streamlined processes would be a significant, but not impossible, step. It acknowledged that a single standard template is unlikely to be achievable, but greater consistency in the structure and approach taken could be possible, with cross-industry collaboration.

To achieve this, SPP warned that the industry needs to be clear on its priorities where capacity is constrained. It suggested that while streamlined processes are a response to the call for more capacity for quotes, the priority is now moving towards greater efficiency in the process for trustees and their advisers.

SPP added that pension funds and their advisers can also improve their processes and develop innovative solutions to improve efficiency.

It said that an adviser’s streamlined process could play an important role in well-established and clearly structured broking processes, with pre-negotiated contracts, which could give insurers additional confidence that transactions will go ahead efficiently and with minimal costs.

It acknowledged that pension schemes with more complex benefits may not easily fit into a streamlined format and suggested that those funds consider approaching a single insurer to work with exclusively, or for data and benefits to be simplified.

SPP said: “There is scope to increase efficiency in different parts of the risk transfer process, but it is also very important to consider the whole process, including the post-transaction phase and the journey to buy-out. There are capacity and resource constraints throughout the different stages, particularly for administration, but also for insurers and consultants.”

It noted, however, that discussions amongst the SPP’s diverse membership reveal that, overall, there is no single party holding up the process, but rather a combination of issues and challenges that impact insurers, trustees, schemes, and administrators differently.

“For the risk transfer process to improve, all interested parties need to work on their particular issues, whilst simultaneously working collaboratively with other associated partners in the process,” it added.

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