New Entrants Reshape the Bulk Annuity Market

For more than two decades, the bulk annuity market relied on a limited number of incumbents. Recently, however, new players have taken an interest. At the recent Professional Pensions Endgame Summit, Isio’s Nick Johnson and Andrea Mendham explained why the market was ripe for disruption and how each new insurer is carving out its own niche.

The UK bulk annuity market is undergoing a notable shift, driven by the emergence of several new providers that are reshaping competition, particularly at the smaller end of the market. The arrival of these new entrants – including Royal London, M&G and Utmost – signals a significant moment for an industry that, until recently, had seen a long period of limited change in its competitive landscape.

For more than two decades, UK pension schemes have relied on established bulk annuity providers to de-risk. Yet all of today’s incumbents were once themselves new to the market. History has shown that while some new entrants grow into long-term players, others do not survive beyond the early years. This dynamic has long informed trustees’ cautious approach to engaging with less-established insurers.

While the regulatory framework in the UK ensures that scheme members continue to receive their benefits even if an insurer exits the market, trustees are naturally wary of the administrative complications. “The underlying comfort blanket of insurance regulation has always worked, but receiving payments is only one aspect of this,” says Nick Johnson, partner at Isio. “Most schemes would prefer to avoid the attendant stress, hassle and potential advisor costs.”

Opening a closed shop

Barriers to entry in this market are substantial. Authorisation comes at a cost, with new providers subject to significant regulatory scrutiny – and then there’s the commercial challenge of persuading trustees and sponsors they are a credible and secure home for scheme liabilities. “There was a good four or five years where those hurdles were too daunting for anyone to put their head above the parapet,” says Johnson.

But the dramatic rise in scheme funding levels that occurred a few years ago changed everything. A growing number of pension schemes have found themselves at or near buyout funding levels, often without the need for additional sponsor contributions. This development has significantly increased demand for quotations from insurers.

Crucially, that demand has begun to outstrip the capacity of existing providers. For the first time in decades, insurers are prioritising well-prepared schemes and, in some cases, limiting the number of deals they quote on. This imbalance in the supply-demand dynamic has created a space for new entrants to operate in.

“Previously, a new entrant might have competed as one of seven bidders. Today they could be one of only three actively quoting,” says Andrea Mendham, Director at Isio. “On top of this, you have non-price factors – including service, flexibility, and innovation – where new providers can offer a point of difference.”

Early indications suggest they are seizing that opportunity. Transactions we’ve completed with Royal London, M&G, and Utmost reveal that each is pursuing a distinct strategy to establish its market position. In some cases, pricing has been highly competitive; in others, their flexibility or responsiveness to complex benefit structures has proved decisive.

These developments are especially pronounced for schemes under £100 million, which have historically had limited options.  Although even the smallest schemes have been able to secure a quote, it has been difficult to create market tension. However, Royal London and Utmost, in particular, have now expressed a clear willingness to operate in this part of the market, while Blumont has indicated it will quote across all scheme sizes.

Carving niches

The benefits of greater competition are evident. New entrants, aware that they must build a track record to grow, have been willing to price competitively, and existing insurers have therefore also sharpened their pricing. This additional price tension can sometimes be significant enough to determine whether a transaction could proceed or not.

Where price alone has not been sufficient, new entrants have also shown a willingness to be innovative, particularly in dealing with schemes that have unusual benefit structures or require bespoke transaction timelines.

Despite these positives, trustees face several challenges when considering new entrants. Foremost is the lack of operational history. Trustees must be satisfied that the provider is capable not only of completing the transaction, but also of managing the transition to buyout and delivering member services thereafter.

Another challenge lies in communicating transactions to members. “Pension communications are complex at the best of times. Unfamiliar insurer names can introduce additional uncertainty,” says Mendham. “Then there’s member concerns around scams or service continuity to think about – which are amplified when the provider is not widely recognised”.

Counterparty risk remains a core consideration too. Although regulatory approval by the Prudential Regulation Authority (PRA) implies a robust assessment of financial strength, trustees are increasingly supplementing this with independent financial due diligence, even for smaller transactions. Such diligence is viewed as an important step in providing reassurance to stakeholders.

Assessing new entrants ultimately comes down to understanding trustee priorities and asking the right questions. Different boards will weigh factors such as financial resilience, administrative capability, and leadership experience differently. Trustees also place value on the willingness of insurers to engage directly and transparently – something newer providers have so far shown an eagerness to do.

So while new entrants bring inherent risks, they also present opportunities for innovation, potentially better pricing, and increased choice. The market is no longer defined solely by long-standing players, and trustees now have a more diverse set of options than at any point before.

As demand for de-risking solutions continues to grow, the role of these new providers looks set to become more central. To join the ranks of the established bulk annuity providers, they will need to build trust, deliver consistently, and continue differentiating themselves in a competitive but increasingly dynamic market.