Mercer, the global consulting subsidiary of broking and advisory giant Marsh & McLennan Companies, expects the UK bulk annuity market to exceed £40 billion by the end of 2019, and has projected accelerated growth in pension risk transfer over the next decade as schemes mature.
Overall, Mercer expects the total UK pension risk transfer market, including longevity swaps, to reach £50 billion by the end of this year, which is close to double that of 2018. In addition, Mercer expects that individual DB to DC transfers will exceed £20 billion in 2019.
2019 has been a year of record-sized transactions, notes Mercer, including roughly a dozen sized at over £1 billion, while the firm has also seen an active market for smaller buy-outs.
Looking forward, and Mercer states that lower pricing as a result of more schemes maturing, coupled with additional reinsurance companies entering the UK marketplace, suggests that the market will experience accelerated growth over the next decade, with the bulk annuity market forecast to quadruple when compared with the current decade (which Mercer says saw £135 billion paid to insurers).
David Ellis, Partner at Mercer, said: “The next few years are looking bright for those schemes wishing to insure their members’ retirement income. As the UK’s defined benefit schemes mature, the length of insurance contracts reduce, making them more predictable and cheaper to buy. Despite the increased demand, there is still capacity in the market for well-prepared schemes.
“Schemes that want to take risk off the table need to do their homework before they approach insurers. Key steps include understanding the range of options available and choosing the best approach for the scheme, putting the right governance and decision-making structures in place and getting data and benefit information ready for transaction.”
Ruth Ward, Principal at Mercer, added: “Our acquisition of JLT earlier this year consolidates our leadership in this space. We can now bring our risk transfer expertise to hundreds more DB pension schemes. Smaller schemes are certainly having to work hard to gain traction with insurers, but there are great opportunities for those who are well-prepared.
“It’s essential to make it as easy as possible for insurers to quote and our streamlined service does just that, cutting timescales for initial pricing to just 10-15 days every month for many smaller schemes.”
