The Budget reforms are expected to boost the pricing and affordability of pension buyouts, with bulk annuity volumes potentially exceeding the £10bn mark, according to JLT.
Data from the pension expert's Market buyout market watch report 2014, revealed that the first three months of 2014 had already seen the two largest deals announced to date, a combined £3.6bn buy-in for the ICI Pension Fund and a £5bn longevity swap to cover liabilities for Aviva Staff Pension Scheme. Bulk annuities deals announced over Q1 2014 account for over £3.9bn of liabilities, the firm added.
However, the March Budget, which removed requirements to purchase annuities, was likely to drive further change, the firm said.
JLT head of buyouts Martyn Phillips said: 'While the Budget 2014 is expected to reduce volumes of individual annuities written in the future, the bulk annuity market is likely to be a beneficiary and this will contribute to improving buyout affordability for schemes.'
The firm also noted that members of defined benefit schemes may want the same flexibilities as defined contribution scheme members at retirement.
'If the government doesn't enact legislation to prevent transfers from private sector defined benefit schemes into defined contribution arrangements, more members could transfer out, improving schemes' funding levels. This will consequently make buyouts more affordable,' JLT said.
'Also, the new £30,000 threshold for trivial commutations should ultimately reduce the number of smaller liabilities within a scheme and the costs linked to them, leading to greater affordability of bulk annuity purchases.'
On medical underwriting, JLT said it expects insurers in 2014 to report a strong pipeline of new deals. The firm revealed that 2013 saw over a dozen of underwritten buy-ins, although the majority of these transactions were for smaller schemes.
'This trend is expected to continue, larger schemes are also able to benefit from underwriting, eg by underwriting solely the highest individual liabilities,' said the firm.
