Bulk Annuities: delivering de-risking in challenging times

The bulk annuity market has demonstrated remarkable resilience in the face of Covid-19. Our report, Bulk Annuities - delivering de-risking in challenging times, analyses the impact of 2020 on the bulk annuity market and what this means for the years ahead.

2020 has been an exceptional year and not one which people could have anticipated. Throughout this period of uncertainty driven by the onset of Covid-19, the bulk annuity market has operated effectively, with total buy-in and buy-out volumes for this year set to become the second highest on record. The market has continued to offer schemes, across a range of sizes, with attractive opportunities to de-risk.


Key findings

The bulk annuity market is on track to complete £25-30bn of transactions, not far off the £30bn predicted at the beginning of the year

During the first half of 2020, £12.6bn of buy-ins and buy-outs were completed – the second busiest first half of the year ever

2020 will see at least a further £15bn of longevity swaps, ranging from as small as £150m in size to the second largest ever at £10bn

Competitive pricing

Insurer appetite for bulk annuity transactions has remained strong in 2020, with competitive pricing levels relative to gilts providing attractive pricing for schemes to de-risk throughout the course of the year. We look in detail at pricing levels over 2020 and consider how different schemes' financial positions may have fared.

We consider what 2021 might bring with potential changes to insurers pricing and hedging strategies following the November RPI reform announcement and possible further market volatility arising from the economic impacts of the pandemic and implementation of Brexit.

What is the demand for de-risking transactions likely to be from schemes in 2021 and beyond? We explore this and look at which schemes are likely to be eyeing opportunities.

Covid-19 impact on longevity

2020 has seen a dramatic increase in demand for accurate and timely information about mortality, which in the context of the pandemic is understandable. There is now a substantial amount of new data and nuance for trustees and sponsors of pension schemes to consider when setting the longevity assumptions for their own scheme. We explore the information available and importance of understanding the scheme’s specific longevity profile when approaching the insurance market, as well as reviewing the response of the longevity risk transfer market during this extraordinary year and possible future influencing factors.

Holistic journey planning

Having a robust journey plan in place can help support the delivery of a scheme's long-term objectives and optimise any transaction outcome. We look at the steps taken by schemes who have completed their journey plans to learn from their experiences. This includes the different transaction options now available and the practical preparatory steps that should be captured within a schemes holistic journey planning to be truly ready to capitalise on any market opportunities. We draw on aspects of Barnett Waddingham's DB Navigator framework to show how schemes can effectively chart their own course towards their endgame.

Case study: Old British Steel Pension Scheme £2bn buy-in transaction

Barnett Waddingham advised on the recent £2bn transaction of the Old British Steel Pension Scheme, completed in October 2020. This is anticipated to potentially be the largest transaction this extraordinary year.