Mark Williams
As the UK pension risk transfer (PRT) market continues to mature, schemes are seeking greater efficiency, transparency and readiness throughout the transaction journey. With timelines tightening and insurer capacity under strain, technology is now playing a central role in how schemes prepare for and complete their endgame strategies.
In this edition of PRT Perspectives, we turn the spotlight inwards and speak with Kelvin Wilson, Heywood’s Director of Pension Risk Transfer, who leads our PRT proposition. Drawing on his experience supporting schemes, insurers and advisers across the full transaction lifecycle, Kelvin shares his views on what it means to be truly “transaction-ready,” the role of accurate data in driving certainty, and how digital tools are helping the industry overcome today’s buyout bottlenecks.
Mark Williams: The bulk annuity market is evolving fast. Whilst buyout was previously a guiding light, the emergence of superfunds and the debate about run-on leaves more options for trustees. Regardless of which direction schemes opt for, being well prepared is key. Can you talk us through what this means?
Kelvin Wilson: In simple terms, a well-prepared scheme means that it has good management of its funding position, which, in turn, is underpinned by accurate data on the structure of its assets and liabilities.
Bringing more colour to this, this means members’ and their benefits have been reviewed to ensure the right members and their dependents have been identified, the correct and transferrable risks/benefits have been calculated and summarised in a format that the insurer/superfund can price accurately.
Finally, it is imperative that a scheme has not only the value of assets to meet the risk transfer premium but that these assets have the right liquidity profile acceptable to the insurer or superfund.
Mark: It’s been another busy year in the UK pension risk transfer market. As a result, we’ve heard a lot about capacity and resource constraints. How are these pressures impacting timelines for buy-ins and buyouts, and what can schemes do to be transaction-ready, sooner?
Kelvin: What is clear is that transactions at the initial buy-in stage are not failing due to capacity – sufficient work has been done on schemes coming to request quotes; insurers have invested in resources to enable them to take schemes to buy-in.
However, the capacity issues we have heard from trustees and insurers relate to the work that needs to be done to schemes as they transition from buy-in to buyout. A typical transition take 18-24 months, but a combination of an unprecedented large number of transactions and complexity surrounding work needed to transition has seen many buyouts taking longer than two-years. This leads to higher costs to the scheme, difficulty with strategic planning for the insurer and frustration across advisors and TPAs.
Some quick, simple solutions to these buy-in to buyout capacity issues include:
- Including additional data/benefit cleanse work within the scope of work done on schemes looking to obtain buy-in quotations, e.g. benefit reviews from first principles and starting GMP equalisation projects.
- TPAs perform great work in data and benefit cleansing. However, this is in addition to their BAU of administering the scheme. Use of additional resources from specialist data and benefit technology will bring increased capacity and independent verification to complex transition to buyout work.
Mark: We’re increasingly seeing trustees and advisors turn to digital tools to assist with transaction readiness. Can you talk us through exactly how PRT-tech is helping?
Kelvin: For me, the benefit of technology within risk transfer relates to how it has made processes which were once very manual, repetitive and often prone to errors, more automated, auditable and accurate.
If we split PRT transaction into three stages – (1) Preparing to get quotations, (2) an initial transaction (e.g. a buy-in) followed by extensive due diligence, and (3) final risk transfer, e.g. a buyout. PRT tech is helping to bring value to each stage, in different ways:
In stage 1, for example, Heywood technology (Heywood Bridge) is being used by schemes and advisors to translate scheme members benefit and personal data into multiple insurer templates, helping to streamline quotation processes.
At stage 2, Heywood’s low-code calculations technology is able to automate GMP equalisation and benefit calculations at scale, allowing reviews to be done quickly with a clear audit trail.
At stage 3, where effective member communication is crucial, Heywood’s secure administration platform is plugged into real time member data/information updates whilst offering secure portals/lines of engaging with members/policyholders.
Mark: Data accuracy and benefit validation remain at the heart of every transaction. How is Heywood helping schemes and insurers streamline these steps to achieve faster, more reliable outcomes?
Kelvin: I have touched on some of Heywood’s solutions previously. With respect to data accuracy, we have scaled, bulk agreements with the leading data sources, including Lexis Nexis, Mortality Manifest and GBG to access tracing, spousal, mortality and residential information for small, medium and large pension schemes. Our automated benefit calculations software is able to perform benefit reviews at scale, from first principles or variation sampled analysis.
Our Heywood Forms technology is assisting insurers and advisors to convert and translate summarised benefit specification into set templates. This is a precursor to our developing technology to convert complicated and lengthy TDRs (Trust, Deed and Rules) into summarised benefit specifications.
Mark: As schemes face increasing pressure to evidence data quality and calculation accuracy, what advances are being made in automation or analytics to make that easier?
Kelvin: Our data analytics service here at Heywood gives users the ability to assess scheme membership and benefit data, reviewing what is on the administration system versus what ought to be there. Using relationships with the best, most relevant and global data sources, Heywood Insights integrates into existing client infrastructure to empower schemes, advisors and insurers to update member information as it changes in an automated way.
Heywood Bridge calculation software allows member benefits to be calculated from first principles or assessed on a sampled basis. Its rules-based engine means that calculations (including GMP equalisation) and benefit reviews can be performed quickly, at scale and with automation.
Mark: For members, the success of a buyout is often defined by what happens afterwards. How can schemes and insurers build trust and ensure members continue to receive the same level of clarity and confidence post-transaction?
Kelvin: The key for schemes/trustees and insurers is to build an effective communications strategy for members and, eventually, insurance policyholders before, during and after buyout has taken place.
Member experience of an effective and successful communication strategy will lead to them feeling better informed, more confident and likelier to trust the buyout transaction process. This will require schemes and insures to get the fundamentals right:
- Having correct information on members (names, addresses, spouse, pension benefit amounts);
- Getting relevant information about the risk transfer transaction to members in a clear and timely manner;
- Using a communication method that is effective for each member – digital email/letter, secured member portals, postal letters and/or gazette posting.
The people doing the communicating, how they do it, when they do and what they communicate are all factors that will contribute to member confidence and trust in the buyout process.
Discover how Heywood Passport supports data accuracy and confidence in pension risk transfers.
Learn more about Heywood’s pension risk transfer technology
