LCP’s five top predictions for the pension risk transfer market in 2025 are as follows:
1. Another bumper year with £40-50bn of buy-ins for the third year running and over 300 transactions for the first time. Well-funded schemes are finding themselves in a position of real choice between insurance, run-on, or a combination of the two. However, LCP expects insurance to remain the ultimate endgame for the majority of schemes, driving continued high demand for buy-ins over the next decade. Total 2025 buy-in volumes will be influenced by the individual decisions and strategies of large schemes, such as NatWest which completed buy-ins totalling a reported £11bn last year. Numbers of smaller scheme transactions will continue to grow as insurers increase their dedicated capacity, which will propel 2025 transaction numbers to new heights.
2. There will be at least one new DB superfund and one new entrant insurer in 2025. The first superfund transfer for a non-distressed sponsor was completed by Clara-Pensions with Wates in December, opening the door for a much wider range of sponsors and trustees to look at superfunds as a credible endgame option. This, coupled with the fact that the superfund regulatory framework will be put on a much stronger footing when it’s formalised in the 2025 Pensions Bill, means that LCP expects to see at least one new superfund confirm its planned market entry this year. LCP also predicts one further new entrant insurer in 2025, taking the buy-in market to a record 11+ insurers.
3. We will see continued favourable buy-in pricing in 2025 as new entrants make their mark. 2024 saw full buy-in pricing reach its best level in years outside of a crisis period. LCP expects buy-in pricing to remain favourable as insurance capacity continues to exceed demand and as new entrants make their presence felt, further increasing competition.
4. There will be an increased focus on non-pricing factors when selecting insurers. With many schemes in surplus, non-price factors such as member service will become a much bigger focus – with a majority of participants in a recent LCP poll placing high value on maintaining web functionality for members following an insurance transaction.
5. There will be over a 33% increase in the number of schemes issuing individual member policies and winding up in 2025. LCP predicts that over 150 schemes will issue individual policies and wind-up in 2025, up from around 110 in 2024. This rapid growth will place huge resource demands on the industry – for insurers, pension schemes and administrators – given the detailed work required to prepare for such a transition. This is a challenge that the industry will need to grapple with over the next few years, with continued investment and the right specialist support essential.
Charlie Finch, Partner at LCP, commented: “We are predicting a vibrant year for the UK pensions risk transfer market in 2025 with £40bn to £50bn of buy-ins for the third year running and a record 300+ transactions. Last year’s new insurer entrants – Royal London and Utmost – will begin to step up their market presence and we are anticipating a further entrant that will propel the market to a record 11 insurers competing for a share of the c£1.4 trillion assets in the UK DB pension schemes.
“The fledgling superfund market is set for expansion on the back of a new regulatory framework that is due to be laid before parliament this year. We expect at least one superfund to enter the market this year – joining Clara-Pensions which has now grown to c£1.4bn – and bringing superfunds more into the mainstream as an option for less well-funded pension schemes.”
Ruth Ward, Principal at LCP, added: “Buy-in pricing from insurers over the second half of 2024 was at its best level in many years, despite additional yields on corporate bond assets typically held by insurers being close to record lows. Given the insurers’ ability to source a wide range of assets across both UK and overseas markets and their appetite to innovate, we remain optimistic that pricing will continue to be favourable over 2025.
“Despite fears of a capacity crunch, the smaller end of the market is performing well and is seeing rapid growth thanks to a number of dedicated services established by insurers for smaller schemes. The record transaction activity is however putting an ever-growing strain on third-party pension administrators who are being asked to work through long lists of historic data issues to get schemes ready to buy-in and ultimately wind-up. We estimate the number of schemes set to wind-up this year will grow by over 33%. Running a smooth and timely process to achieve this ultimate milestone is a key challenge for the pensions industry as the DB pensions universe slowly runs off.”
LCP’s predictions for the pension risk transfer market in 2025
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