Having seen just under £60bn in transactions completed in 2024, the report predicts that buoyant scheme funding positions and new insurer participants in the market will mean more schemes have the opportunity to transfer liabilities in 2025. While a number of well-funded schemes may plan to run-on for longer in order to take advantage of improved access to surplus, many of those will use longevity swaps as part of that process in order to manage their risk.
Shelly Beard, managing director in WTW’s pension transactions team, said: “The relatively stable market conditions over 2024 combined with the rise in gilt yields over recent weeks has meant schemes’ funding levels have generally continued to improve. Further, more trustees and corporates have been actively focussing on dealing with their illiquid assets, drafting benefit specifications and cleaning up their data. Alongside this, insurer pricing has remained attractive for schemes of all sizes.
“All of this is culminating in more schemes being ready to approach the insurance market to undertake full scheme buy-ins, with the increase in demand expected to be met in part by the increase in participants in the market. Moreover, strong levels of longevity swap activity are also expected to continue. The proposed Mansion House Reforms have led to a number of pension schemes with strong sponsors taking a fresh look at their long long-term target and deciding that running on for longer may be the preferred way forward, with a longevity swap used as a means of mitigating a key remaining unrewarded risk.”
The report anticipates a number of other developments in the UK pensions de-risking market this year, including:
A real focus on the buy-in to buyout phase
With so many schemes having transacted full scheme buy-ins over the last few years, there is increasing focus from insurers, trustees and advisers on the ability of the insurance industry and administration providers to efficiently convert those buy-in policies to full buyouts. This pressure on insurer resources may create an opportunity for smaller schemes with ‘buyout-ready’ data to fast-track the buy-in to buyout process.
Continued development and innovation for smaller schemes
Some insurers are already well-established in the “small scheme” space (typically deals less than £100m in size), with four having set up processes involving fixed templates for benefits and data and pre-defined contracts to try to make the process as efficient as possible for the insurer to price and onboard. With two of the new entrant insurers in 2024, as well as a third new entrant expected in Q1 2025, all concentrating on the smaller end of the market, we are likely to see increased innovation and more choice and opportunities for smaller schemes.
More transactions outside of the traditional buy-in arena
So far Clara Pensions has completed three deals, all based on its traditional superfund model. The third transaction, with the Wates Group, was the first scheme to have an ongoing covenant demonstrating that the superfund model is a viable solution for a wider range of scheme circumstances. Expanded offerings from Clara Pensions also have the potential to attract more schemes and companies considering the superfund approach for securing their liabilities.
Regulation continuing to influence and shape the market
With the final Solvency UK measures having come fully into effect at the end of 2024, this year will see greater clarity on the extent of the impact of these reforms on the bulk annuity and longevity swap markets. Specifically, whether any of these reforms have led to a change in pricing or policyholder security.
2024 saw increased scrutiny from the Prudential Regulation Authority on the bulk annuity market, reflecting the growth of the market and the size of some of the deals. As the PRA aims to be a proactive regulator, we predict that this scrutiny will continue over 2025, especially as the market continues to grow and transact large volumes.
WTW’s annual De-risking Report.
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