Small schemes 'driving force' behind record BPA activity in 2023

Written by Sophie Smith

03/07/2024

Transactions under £10m were the driving force behind the record 226 buy-in/buyout deals recorded in 2023, according to analysis from LCP.

The research revealed that the number of transactions under £100m more than doubled in the past three years, rising from 77 in 2020 to 162 in 2023. 

Buy-ins/outs between £10m and £100m also contributed most strongly to the growth in activity seen over 2021 and 2022, although LCP clarified that the growth in 2023 was almost entirely driven by deals under £10m.

In contrast, the number of mid-sized buy-ins between £100m-£1bn has been "broadly static" since 2020, and while transactions over £1bn more than doubled in 2023, LCP said that they still made up a "relatively small proportion" of the overall number.

The firm said it expects this trend to continue in 2024 and the smaller end of the market will remain “buoyant”, pointing out that streamlined insurer processes are making it easier for small schemes to access the market and more efficient for insurers to transact, with four insurers now offering these.

In addition to this, it said that "well established and clearly structured" streamlined adviser processes with pre-negotiated contracts are giving insurers confidence that transactions will go ahead efficiently.

It also suggested that there will be extra competition generated by two new insurer entrants intending to participate in the market from later this year, with core appetite for buy-ins/outs expected to focus on deals under £100m.

LCP partner, David Stewart, commented: “In 2024, we’re continuing to see a healthy and competitive market for small schemes, with recent LCP-led processes receiving multiple insurer quotations even for schemes below £10m.

"Our streamlined service has now completed 94 buy-in/out transactions, with 85 per cent of processes since the beginning of last year receiving multiple insurer quotations.

“Insurers continue to have low tolerance for under-prepared schemes of all sizes when triaging transaction opportunities – with a focus on avoiding post-transaction costs and log-jams.

"The message to smaller schemes is that they can access highly competitive pricing, but they need to be prepared and to work with a specialist adviser with a strong track record of completing deals.”

Indeed, despite concerns over potential capacity constraints in the bulk purchase annuity (BPA) market, industry experts have argued that it is still possible for smaller schemes to engage, with research from DLA Piper revealing that the majority of consultants in the small scheme space have seen a high level of successful transaction rates.

Related Articles