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The Actuary The magazine of the Institute & Faculty of Actuaries

Bulk annuity market to quadruple by 2030

UK pension schemes have transferred £135bn of liabilities to insurers over the last decade, and this is set to quadruple over the next 10 years, Mercer has predicted.

Risk transfer deals set to boom ©Shutterstock
Risk transfer deals set to boom ©Shutterstock

The consultancy firm said that growth would be driven by lower prices as more pension schemes mature and additional reinsurers enter the bulk annuity market.

“The next few years are looking bright for those schemes wishing to insure their members’ retirement income,” said Mercer partner, David Ellis.

“As the UK’s defined benefit (DB) schemes mature, the length of insurance contracts reduce, making them more predictable and cheaper to buy.

“Despite the increased demand, there is still capacity in the market for well-prepared schemes.”

Mercer expects the bulk annuity market to exceed £40bn by the end of this year, with total risk transfers, including longevity swaps, likely to hit £50bn.

And although this year has seen a number of record-sized transactions, including several over £1bn, Mercer said it had led on dozens of deals involving under £50m in liabilities.

The company has also seen strong demand for member option exercises, with over £20bn of individual DB and defined contribution transfers expected by the end of 2019.

This comes after analysis from Barnett Waddingham found that more than half of FTSE 100 companies could buyout their DB pension scheme within 10 years.

Moreover, the consultancy firm calculated that 20% of FTSE 100 firms could be in a position to buyout their DB scheme within five years, and that 55% will be by 2028.

“Schemes that want to take risk off the table need to do their homework before they approach insurers,” Ellis continued.

"Key steps include understanding the range of options available and choosing the best approach for the scheme, putting the right governance and decision-making structures in place and getting data and benefit information ready for transaction.”

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