The pension scheme buy-in market is expected to exceed record highs of £50bn every year for the foreseeable future and could top £70bn in some years, says a report from pensions and financial services consultancy Hymans Robertson.
The firm notes that this dramatic transformation in the market has seen insurer pipelines today being more than double their level a year ago, with more multibillion-pound buy-ins expected following the recent announcement of the RSA pension schemes’ £6.5bn buy-ins.
Hymans anticipates 80% of future bulk annuities to be whole-scheme buy-ins or buy-outs, in stark contrast with the last 16 years, having been 80% pensioner-only buy-ins.
The firm states that a material increase in long-term interest rates over the last year means that many pension schemes have seen significant improvements in their funding levels. It adds that on average, pension schemes are now only roughly five years away from being able to afford to fully insure.
Further, many pension schemes have already reached the position where they can fully insure and so are moving quickly to complete buy-outs to lock down risk for their members.
Hymans suggests that the popularity of buy-ins was already increasing, but this shift in market conditions has meant pension scheme demand has leapt to its highest-ever level.
Commenting on the report, James Mullins, Partner and Head of Risk Transfer at Hymans said, “The buy-in market is close to entering its 18th year and it’s certainly now in a whole new phase of adulthood.
“The recent increase in demand from pension schemes to fully insure their members’ benefits has been incredible. As a result, we expect that by 2030, half of all of the UK’s private sector DB pension scheme liabilities will have been insured, covering 5 million members’ benefits and close to £1 trillion of liabilities.”
Mullins continued, “Excellent pricing remains but it is no longer simply a buyer’s market. Pension schemes need to be smarter than ever in the way they prepare and approach the market for buy-in quotations.
“For example, upfront shortlisting of insurers can be a powerful strategy in this new market phase. And for some smaller pension schemes, exclusive partnerships will deliver the best results.
“Pension scheme members in the UK will see a material shift over the next 10 years. Up until now, their pensions have been managed and paid by a group of trustees, linked to their previous employer.
“However, going forwards, their pensions will be increasingly managed and paid by insurance companies. Removing the link between their pension and previous employer will feel like a significant change to many members, so it needs careful communication to set out the benefits.”
He concluded, “We expect over 5 million pension scheme members to be transitioned to the UK insurance regime over the next 10 years, with oversight from the Prudential Regulations Authority and the Financial Conduct Authority.”
In related news, a recently released data report from Legal and General showed that the US pension risk transfer (PRT) market had a record year in 2022 with an estimated $53 billion in total market volume, significantly exceeding the 2021 record of $38 billion.
