“Tangible progress” has been made to increase efficiencies and bolster sustainability within pension buy-out and buy-in transactions since the launch of the Sustainability Principles Charter last year, according to Accounting for Sustainability (A4S).
Signatories are now set to adopt the Bulk Annuity Sustainability Survey (BASS), which could replace multiple ones used by different advisers to assess insurers’ sustainability credentials for the bulk annuity process. The initiative has the potential to reduce the average number of sustainability surveys completed by insurers annually from 10 to 1.
The Charter was set up a year ago by A4S, the Church of England Pensions Board, and Railpen to align expectations around sustainability within the bulk annuity process. It has four key principles based on transparency, decision-making, reporting and engagement, and collaboration, with the more than 30 signatories working to embed the Charter principles into their operations and address the inefficiencies within the insurer selection process
The BASS “will significantly improve the efficiency of the process and the breadth of information available for comparing the insurer’s responses on sustainability”, A4S added, setting a high bar on how insurers should be considering sustainability in their strategic and investment decisions.
Kerry King, A4S executive director of capital markets, said: “Embedding the Charter principles into all future bulk annuity activities is vital to ensure that this market is an enabler to the UK’s climate ambitions. The significance of this market to those ambitions is set to increase with over £500bn in bulk annuity transactions expected over the next five to 10 years. The signatories to the Charter have demonstrated a fantastic collaborative approach, coming together throughout the year with a common goal to raise the importance of sustainability within the bulk annuity process.”
Sustainability ‘playing a prominent role in bulk annuity transactions’
The prominence of sustainability in the market has grown over the past year as the number of signatories to the Charter has increased. This includes eight BPA providers (representing 97% of the UK BPA market), pension schemes representing over £100bn in assets under management and pension and investment advisers with over £3.1trn UK-based assets under advisory.
Additionally, in 2024, several pension schemes publicly announced that sustainability credentials and commitment to the Charter principles were key considerations in selecting their buy-in provider. The Charter has also been mentioned in the Pension Regulator’s 2024 annual funding statement, recommending its use during the due diligence process.
Tim Miller, senior manager of pensions policy at Railpen, added: “It’s fantastic to see the amount of progress that’s been made in such a short space of time, with pension schemes, advisers and insurers all pulling in the same direction. Sustainability already appears to be playing a more prominent role in bulk annuity transactions for many schemes, and I expect excellent collaborative initiatives such as the Bulk Annuity Sustainability Survey will make it easier for all parties to consider sustainability in more detail moving forward.”
The Charter was developed after members of the UK Chapter of A4S’s Asset Owners Network (comprising 40+ UK pension scheme chairs) wanted reassurance that considerations around sustainability-related risks and opportunities – something they have embedded into their investment decision-making processes – would continue once a bulk annuity transaction has been completed.
The pension chairs wanted increased transparency, both before the point of transaction to compare how insurer approaches to sustainability align with their own, as well as post-transaction to assess continued alignment.
