The £24 billion bulk annuity market: an upward trend

Published by Gavin Markham, Rosie Fantom on

The bulk annuity market hit new heights in 2018. For the first time in history pension scheme buy-in and buy-out transactions exceeded £20bn, the £24bn completed in 2018 doubling previous annual market volumes in recent years of around £10-£13bn.

Our annual bulk annuity research considers this step-change in activity. We highlight the key issues for trustees and sponsoring employers to consider in seeking to transact successfully in a market where this heightened level of demand is expected to continue in 2019 and beyond.  

Why the increase?

Attractive pricing opportunities, with historically competitive levels relative to gilts, has helped support the increased demand from schemes for de-risking transactions. This is coupled with improvements in schemes’ finances, meaning de-risking opportunities are more attainable.

Whilst pricing has remained highly competitive into the early part of 2019, insurers are able to be more selective about which transaction processes they participate in, such is the demand from schemes.

"Attractive pricing levels are supported by the insurers’ ability to source alternative illiquid assets with favourable risk adjusted returns."

It’s therefore more important than ever for trustees to be well-prepared and have a thorough understanding of the dynamics behind the market. Demonstrating transaction readiness and a considered approach to market will be key in gaining insurer appetite and positioning the transaction in the most favourable light relative to other schemes.

What’s in store for 2019 and beyond?

While there are some short term factors that may influence the level of activity to some extent, the natural maturing of schemes and underlying improvement in funding positions means the trend of increasing demand is here to stay.

Developing the scheme’s end-game can help provide a robust decision-making framework for a transaction. This can incorporate liability management exercises, which can materially reduce the ultimate cost of securing the benefits.

Key findings

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The £24 billion bulk annuity market: an upward trend