𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

The Bank of England has announced new legislature to crack down on certain account types that could bolster protections for pension pot holders across the country. The Prudential Regulation Authority wing of the Bank of England has proposed changes to the use of funded reinsurance.

Funded reinsurance is used by insurance companies when completing a buy-in of a final salary pension scheme using a bulk purchase annuity (BPA) policy. The reinsurance is a type of offshore finance which the Bank of England’s Prudential Regulation Authority has said they hope to clampdown on in the coming years.

The reinsurance is most often used by companies looking to complete large deals. Under current law the pension pots of both current and future employees of the company taken over are not as thoroughly protected as they could be.

Samantha Downes, writing in The Financial Times, confirmed that new legislation suggested by the Prudential Regulation Authority would offer firmer protection to pension pot holders.

She wrote: “In order to complete these large deals — involving billions of pounds of savers’ retirement money — the insurance company has to promise to pay the pensions of scheme members both now and in the future. This is where the insurance company turns to funded reinsurance, a form of offshore finance.

“The finance is used to guarantee future pension payouts to savers in the scheme, while the offshore firm profits from the sell-off of UK pension funds in exchange for guaranteeing bulk annuity payouts.”

What PRA hopes to change from October 2026 is how using funded reinsurance arrangements as an asset strategy will be accessed by companies. From October, the PRA hopes for an 8% increase in the annuity liabilities of companies seeking insurance. Currently this rate rests at between 2% to 4%.

A notice from the PRA issued last year warned there are some companies “who may be more exposed to a range of illiquid investments including through private asset origination capabilities of affiliated alternative asset managers”.

Martin Rayner, managing director and chartered financial adviser at Compton Financial Services, says this move would protect the pension pots of those working for companies taken over in cross-company deals.

He said: “In a worst-case scenario, this could push the insurer into difficulty, ultimately landing costs on the Financial Services Compensation Scheme, which is funded by levies on the wider financial services industry.

“Overall, it should lead to a more resilient insurance sector, [with] fewer incentives to favour funded reinsurance over direct UK investment.

“The regulator is now saying, ‘You can still pass some of the work to a reinsurer, but you must keep more of your own money set aside in case it goes wrong’.”