Smaller UK pension schemes have been urged by Aon Hewitt to look closely at current opportunities with medically underwritten annuities.

Aon Hewitt said that there are now four annuity providers at different stages offering medically underwritten annuities to the UK bulk annuity market. They are Partnership, Just Retirement, Legal & General and Aviva.

Since the market is still developing rapidly, Aon Hewitt is encouraging small schemes to move quickly as this could be their best chance to secure favourable pricing terms.

Dominic Grimley, Aon Hewitt's risk settlement group principal consultant, said: "It is unusual for small schemes to have the best opportunities, but as the market begins to gain momentum, providers are keen to gain a foothold and prove the concept – and that can lead to the kind of attractive pricing that is currently available."

With medically underwritten annuities, the pricing takes account of additional information about an individual's health and lifestyle.

Grimley said: "While medically underwritten annuities will not be feasible for securing large pensioner populations, there is currently a window of opportunity to secure annuities on appealing terms for deals for up to 300 pensioners. This reflects the providers' desire to develop the market - and potentially has no impact on cash funding requirements."

He added: "Schemes should consider how the bulk annuity market is changing and decide if this opportunity is right for them. Understanding the feasibility of the options available is important from a scheme governance perspective and potentially for the sponsor's bottom line too."

First published 22.05.2013

monique_simpson@wilmington.co.uk