Trustees must do more to hold insurers to account on sustainability issues ahead of a buy-out transaction.
This call was made by professional services firm Zedra, which said that there was an urgent need for more transparency around ESG standards, particularly with the boom in buy-out transactions and bulk annuity purchases.
Zedra managing director Kim Nash says that while these buy-out transactions helped to de-risk DB pension schemes, it was also shifting asset control away from trustees, raising concerns about ongoing stewardship and ESG alignment.
She said: “The industry has seen a significant increase in pension schemes completing buy-out transactions across the UK,” said Nash. “This shift is having a noticeable impact on the balance of investments in the market, and on broader systemic risk.”
Nash warned that many schemes had invested considerable effort embedding sustainability principles and stewardship frameworks into their investment strategy—only for that influence to end once a buy-out is completed.
“At the point of risk transfer, trustees cease to have control over the assets held and the stewardship principles being adopted,” she said.
Historically, price has dominated insurer selection decisions. But Nash said improved funding levels are now giving trustees the opportunity to look beyond pricing and consider qualitative factors such as member service models, ESG commitments and cultural fit.
“This is the last chance for trustees to really push for full transparency on how members will be dealt with and what the member experience will look like post-transaction,” Nash said.
She urged trustees to leverage their negotiating position during the insurer selection phase, asking probing questions around sustainability credentials and requesting firm data on ESG impact, rather than just ‘high-level assurances’ about more general goals.
“The more trustees focus on these factors and ask questions, insurers will have to think about their responses and how they can evidence them, driving change within the market,” Nash added.
This call comes amid growing industry focus on stewardship in the post-buy-out landscape, with regulatory attention likely to increase as the volume of risk transfer deals continues to rise.
Nash urged trustees to “make sure their voice is heard” at what is a critical part of the process, when it comes to protecting member outcomes and their long-term futures.