UK pension schemes completed a record £55.8bn of longevity risk transfers with insurers last year, up from the previous high of £51.6bn set in 2019.
That is according to analysis by consultancy firm Lane Clark & Peacock (LCP), which explained how the “exceptional pricing” in 2020 was driven by COVID-19 and fall in the value of assets used by insurers to back their pricing.
Total buy-in and buyout volumes reached £31.7bn, down from the record £43.8bn set in 2019, but significantly higher than in previous years.
Longevity swaps reached £24.1bn, the largest total ever, ahead of the £21.9bn recorded in 2014, which was the next highest year.
“At the start of last year before the COVID-19 pandemic took hold, we predicted that buy-in and buyout volumes would top £25bn in 2020,” said Imogen Cothay, partner at LCP. “It’s a mark of the resilience of the pensions de-risking market that volumes surpassed our expectations topping out over £30bn.”
The analysis is based on insurers’ final reported results for 2020, including the Pension Insurance Corporation’s (PIC’s) results.
Legal & General (L&G) had the highest market share of the buy-in and buyout market on 24%, closely followed by Rothesay on 22%, and Aviva and PIC, both on 19%.
The largest single buy-in or buyout was an unnamed £3.3bn buy-in completed by Rothesay in December, while the £2bn buyout for the Old British Steel Pension Scheme with PIC was the second largest.
There were only two buy-ins or buyouts worth over £2bn, compared to six in the previous year, but at least 60 valued between £100m and £1bn, representing a 67% increase on the 36 recorded in 2019.
Last year also saw six longevity swaps announced by UK schemes totalling £24.1bn, up from two totalling £7.8bn in 2019.
Looking forward to this year, Charlie Finch, partner at LCP, said: “2021 has begun with welcome news for many pension schemes in the form of a surge in gilt yields boosting funding levels and giving extra capacity to de-risk.
“Combined with a strong desire from trustees and sponsors to lock down their risks, this is likely to lead to sustained volumes of longevity risk transfer over the next year.”
Image credit: iStock
Author: Chris Seekings