This year is set to be the biggest on record for pension scheme de-risking in the UK, with £65bn of bulk annuity and longevity swap transactions forecast.
The prediction comes from Willis Towers Watson's (WTW) annual de-risking report, which outlines how buy-ins and buyouts are set to make up £40bn of the total, with longevity swaps completing the remaining £25bn.
A combination of competitive market pricing, pent-up demand from the pandemic, and competition between insurers and reinsurers seeking to fill their expanded targets, is expected to drive transactions this year.
The forecasts come after WTW found that one in three pension schemes anticipate de-risking their liabilities in the next three years.
“We know that the market conditions are likely to be favourable this year and the demand from pensions schemes is there, which is why we’re predicting 2022 to be the biggest ever year for pension scheme de-risking across both bulk annuity and longevity swap markets,” said Sadie Scaife, senior director in WTW’s transactions team.
“The £40bn of buy-ins and buyouts we’re anticipating are likely to be from repeat deals as well as new pension schemes coming to market. We are also expecting the gradual trend towards full buyouts to continue, as schemes mature and funding levels improve, but also as PPF+ cases complete transactions.
“In these busy market conditions we expect insurers and reinsurers to become more selective about which opportunities they will commit resources to, with schemes needing to be flexible on timescales if they want to maximise competition.”
In 2021, the bulk annuity market recovered from a slow start to record the third largest year ever for pensions de-risking deals. Bulk annuities totalling approximately £30bn were completed, as well as nearly £20bn of longevity swaps.
Competitive pricing from insurers was a major driver again as more well-funded schemes sought to conclude their journey plan by de-risking their liabilities in the insurance market.
Looking forward to 2022, WTW said that the provider markets will continue to grow to reflect appetite from schemes, with new entrants to the pension scheme de-risking market anticipated.
These will not all be in traditional insurance or reinsurance businesses, with innovative ways to allocate capital to the defined benefit pensions market expected, including the growth in third party capital offerings and superfunds
“For trustees, more than ever, the focus will be on the security of member benefits, the member experience and an increased focus on environmental social and governance (ESG) issues when selecting a provider for bulk annuities and longevity swaps,” Scaife continued.
“With more options now available to schemes, since the approval of the UK’s first superfund, trustees will expect their insurance partners to demonstrate how they will provide financial security, as well as a commitment to ensuring an excellent member experience through modern and fit-for-purpose administration, clear communications and detailed transition planning.”
Image credit: iStock
Author: Chris Seekings