Overall, despite the challenges brought about by the global pandemic, 2020 may just pip 2019 as the biggest year ever in the longevity de-risking markets, with combined transaction values expected to be at a very similar level to last year’s record breaking £56bn of liabilities transferred.
Looking forwards to 2021, a very similar picture to 2020 is anticipated with Willis Towers Watson expecting another £30bn of buy-ins and buyouts and £25bn of longevity swaps to be completed. As has been the case in 2020, 2021 is expected to present opportunities for all sizes of scheme.
In a landmark market development, 2021 is also expected to see the first deals for superfunds, following the Pension Regulator’s publication of its interim regulatory regime in mid-2020.
Shelly Beard, Senior Director in Willis Towers Watson’s Transactions team, said: “The fact that the longevity de-risking market has hit the volumes we predicted in December 2019, despite all of the unanticipated head winds in 2020, is a testament to the strength of the market and the focus that trustees and sponsors have shown this year to do the right thing for members.
“A few years ago, many were predicting exponential growth in this market, whereas 2019 to 2021 will all have very similar new business volumes. This reflects general falls in scheme funding levels over 2020 as well as the many other priorities trustees have to focus on this year and next – most notably GMP equalisation.
“Looking beyond 2021 we expect the market to grow further. Our clients recognise that future prospects for longevity are more uncertain now than at perhaps any time in recent memory. This means that, where it is affordable to so, transferring risk to the insurance market is the prudent thing to do.
“The key thing for schemes going into 2021 with de-risking ambitions is to stay agile on the timing of any deal. It seems likely that 2021 will be another year of uncertainty and this may present opportunities for well prepared and flexible schemes.”
2020 in review
• By the end of 2020, the bulk annuity market will have reached more than £30bn worth of deals, the second highest after 2019 (£43.8bn).
• This year approximately 150 deals are expected to contribute to the total of £30bn. A similar number of deals completed in 2019.
• The decrease in multi-billion-pound deals this year allowed improved market capacity and access for smaller pension schemes, which have struggled to get traction in the recent past
• The largest bulk annuity currently publicly announced is a £2bn deal for the Old British Steel Pension Scheme, followed by MNOPF’s £1.6bn buy-in.
• The longevity swap market achieved its second largest year ever with some £24bn of longevity risk transferred. The largest transaction was for £10bn, covering three swaps for schemes sponsored by Lloyds Banking Group.
Willis Towers Watson has led the advice for 25 deals covering more than £23bn of liabilities in 2020.
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