According to broker WTW, the UK defined benefit pensions market is likely to see £80 billion in pension de-risking transactions take place in 2024, as the settlement market continues to heighten following considerable improvements in pension scheme funding witnessed across 2023.
Data from the broker’s annual Pensions De-risking report shows that insurers are primed to buy out £60 billion in bulk annuity transactions, as well as £20 billion in longevity swaps this year.
As a result, this would wind up making 2024 the biggest year on record for pensions de-risking.
Last year the industry witnessed historically high numbers of pension schemes securing their liabilities through an insurance led buyout, with over £50 billion written in bulk annuity transactions alone.
The broker explained that it expects this trend to only increase. Many schemes have already changed their investment strategies to secure favourable funding positions throughout the year.
In addition, many are also preparing their data in order to approach the insurance market this year too, WTW noted.
Jenny Neale, director in WTW’s Pensions Transactions team, commented: “It’s clear that funding improvements have turbo-charged the pensions de-risking market and, from a capacity perspective, we have already seen that the insurance market is capable of scaling up to meet demand. The attractiveness of these opportunities is also enticing new insurers to enter the market adding additional capacity, which we believe will be sufficient to meet requirements in the year to come.”
Adding: “Despite the increased demand for de-risking, the Chancellor’s proposed Mansion House Reforms could give pause for thought for some pension schemes and their sponsoring employers. Whilst we expect buyout to be the long term destination for the majority of our clients, we have seen a number of schemes with strong sponsors initiating a fresh review of their long-term target and more schemes may choose to seek value in running on their pension scheme and delaying their move to buyout if a change in legislation allows easier use of any surplus run by the scheme. If this is the case, it’s unlikely that these schemes would wish to run unrewarded risks and consequently could look to hedge their demographic risks through the use of longevity swaps.”
Moreover, WTW is also anticipating several other developments in the UK pensions de-risking market in 2024.
This includes, an increased focus on non-price factors when selecting an insurer. As price remains an important consideration, trustees will increasingly prioritise other factors, such as brand reputation, member experience and financial strength, when selecting an insurer, the broker explained.
Meanwhile, despite the wide choice of transactions on offer, insurers are continuing to support schemes of all sizes. WTW stated that throughout 2024, it expects to see more multi-billion pound transactions for large pension schemes, as well as suitable counterparties for smaller schemes to transact with.
And lastly, with the first superfund transaction taking place in 2023, WTW noted that this year will be crucial in the superfund market’s development as pension schemes explore whether this option suits their circumstances.
