Experts at the leading pensions and risk consultancy now expect the transaction total for pension scheme buy-ins and buy-outs to exceed £20 billion by the end of 2018 and for 2019 to surpass this new record. This prediction is backed up by a survey of Independent Trustees which found 100% agreeing that 2019 will see even more bulk annuity volumes than the record breaking 2018.
The consultancy attributes this continued market growth to competitive pricing from insurers and surging pension scheme demand as a result of improved funding levels and further developed risk management.
James Mullins, Head of Risk Transfer at Hymans Robertson explains what this means for schemes: “2018 has seen a sea change in the bulk annuity market, becoming the first year when demand from pension schemes to complete buy-ins and buy-outs has outstripped supply from insurance companies. Insurers now have the luxury to be more selective about which pension schemes they focus their efforts on and to which they offer their best pricing. For the first time in the market’s history a queue for 2019 is already forming and the onus is now with pension schemes to stand out from the crowd. The potential for market volatility from the Brexit deadline in March 2019 has also led to a rush, with pension schemes looking to complete their buy-in transaction processes as early next year as possible. Combining all of these elements means that we will see the busiest ever start to a year for buy-ins and buy-outs.”
James explains the rise in full pension scheme buy-outs: “It is becoming increasingly common for a pension schemes to be able to afford to insure all of its pension promises and fully pass the responsibility of paying its members to an insurance company, referred to as a “buy-out”. This is because pension scheme funding levels have improved with better market conditions and material levels of company contributions. In addition, the cost of insuring the benefits for younger members, who have not yet retired, has got much cheaper. Indeed, several of the insurers are now particularly attracted to this kind of transaction. Insuring a younger population can provide a good balance for insurance companies’ investment strategies and risk appetite. This all means that pension schemes are often closer to being able to afford to fully insure than they might realise, so we expect to see many more pension schemes fully buying-out over the next few years.”
Looking at what to expect in 2019 James adds: “Excellent buy-in pricing opportunities remain will remain in 2019. The shift in supply and demand however, means that pension schemes will need to use a more intelligent approach to broking the bulk annuity market, both next year and beyond. Before approaching the market, it is now more important than ever for trustees to be well prepared and to have a clear understanding of insurance companies and how they prioritise their efforts. Timing the approach, to factor in the latest activity levels, and not trying to rush through a transaction is also critical.”
Risk Transfer Report
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