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Is pension scheme derisking heading into a boon year in 2022?

31st January 2022 - Author: Pete Carvill

WTW has posited that pension scheme derisking will have a boon year in 2022, according to a new report the company has put out this week.

WTW - Willis Towers Watson logoThe work, WTW’s de-risking report 2022 titled A Bright Future Ahead, predicts that this year will be the fourth in a row that bulk annuities ‘approach a volume exceeding £40bn’.

Writing in the report, Katherine Gilder, director at WTW, said, “With 13 active reinsurers and attractive pricing on offer, we also expect 2022 to be another busy year for longevity swaps, with volumes of around £25 billion. We also predict a greater number of swaps will complete in what has recently been a market driven by a few large transactions.”

Gilder also said: “In the bulk annuity market, all insurers report continued appetite; one, following a strategic review, has reconfirmed its commitment to the market, another is expanding its commitment, and we are also currently working with a new entrant.”

On top of a busy market, WTW also predicted that transactions would be spread equally in terms of size.

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Gilder wrote: “Over recent years increasingly larger schemes have engaged with the bulk annuity market and every insurer has increased its maximum deal size. There are now several insurers that have grown their asset base, reinsurance capabilities and capital sourcing ability to the point that even larger deals are possible and we anticipate more mega transactions in the market next year.”

She added: “Having said that, we expect to see a continuing healthy market for small schemes if they follow a well-run process. By that, we mean by demonstrating a joint commitment to the transaction from both the trustee and sponsor, involving third parties such as scheme lawyers and administrators early in the process, providing clean and complete data and simplifying the process, for example by using the pre-negotiated legal contracts provided in packages such as WTW’s Streamlined Bulk Annuity Service.”

WTW also predicted that a growing number of schemes would be monitoring the market closely, while the increased number of investors has increased space for innovation, the results of which the company expects to see this year.

Overall, looking back at 2021, WTW said that while last year could be seen as business as usual in terms of the bulk annuity market, with overall volumes of nearly £30bn, this told only half the story.

Tom Ashworth, another director at WTW, wrote that mid-year volumes written were only around a fifth of the year’s total, which he attributed to a natural market lull due to the ongoing pandemic, which followed a busy end to 2020.

There were, Ashworth said, upsides to this. He wrote: “One upside of the slower start to the year, however, was that it was beneficial in helping small- and mid-sized deals gain traction, with the average size of deals in H1 around £100 million, significantly less than the £200m+ average deal sizes seen across 2019 and 2020.”

In an accompanying statement, WTW said that its recent research indicated that, “[…] one in three (30%) pension schemes anticipate de-risking their liabilities in the next three years, and 2022 is likely to be a peak year due to a combination of competitive market pricing, pent-up demand from the pandemic and competition between insurers and reinsurers seeking to fill their expanded targets.”

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