The UK’s pension risk transfer (PRT) market had a busy year in 2024, continuing the theme of the past few years. While the total aggregate value of the market last year will not be known for a few weeks, back in September, Legal & General predicted one in excess of £40bn, which would rank among the largest years for bulk purchase annuity deals in the country.
Kunal Sood, Managing Director of Defined Benefit Solutions at Standard Life, expected the total value of completed deals in 2024 to come in at around £45bn and added that many of the trends which emerged in 2024 will continue into 2025, in particular, increasing levels of scheme funding.
“Levels remained strong over the year, with many schemes closer to buy-in or buy-out than anticipated, allowing them to consider locking in these surpluses,” he said.
Stronger scheme funding levels meant the return of bumper deals. Standard Life noted that in 2024 transactions over £1bn became almost the norm with eight publicly announced to date compared to six during the previous year.
“The market has shown its maturity and significant capacity to support demand, enabling even the largest pension schemes in the UK to secure their liabilities using buy-ins and buy-outs,” he said.
The year 2024 saw government-led regulatory changes, including the introduction of the DB funding code in July. Additionally, funded reinsurance came under the spotlight and the Prudential Regulation Authority (PRA) released its Supervisory Statement, the fall-out of which will in 2025 see the launch of the next industry-wide ‘stress test’ which is expected to test these exposures as well as insurers’ resilience.
Other notable market developments in 2024 were the official entry of new insurers into the market. Royal London and Utmost both wrote bulk purchase annuity (BPA) transactions, and in July the former announced its first external transaction, securing a £30m full scheme buy-in with an unnamed sponsor, followed by a further £100m transaction with another external pension scheme in September.
Also last year saw Clara-Pensions, the UK’s only active DB superfund, ink further business in March with Debenhams and then again in December with the £210m Wates Pension Fund. Sood said that DB superfund activity is likely to pick up.
“Given the potential for pooling of assets and greater economies of scale, superfunds could be attractive particularly for schemes with weak sponsors and no realistic prospect of buying out in the insurance market,” he said.
However, schemes in a strong funding position will still be looking for an eventual buy-out.
“With many schemes now in a funding surplus, buy-out remains the gold standard when it comes to securing members’ benefits, particularly in a volatile economic climate,” Sood added.
Looking ahead to 2025, the PRT market in the UK also looks likely to embrace the trend for insurers to give scheme members’ access to independent financial advisers (IFAs) at retirement.
In its annual Member Options and Support survey published in July, Aon asked six of the leading insurance participants for their views on member options and support. The key findings were that one insurer is making IFA advice available to all annuitants, while a further two insurers are actively looking at their offering; the remaining three are not proactively looking but would consider continuing with an existing IFA for larger schemes; most insurers are planning or already have some digital capabilities for member self-service; and 50 percent of insurers would consider making additional options (such as BPO) at retirement available for a scheme of any size.
“Historically, bulk annuity insurers have not provided IFA support or additional options after buyout – but that’s changing. It’s great that insurers are recognising their responsibilities to members and adopting similar approaches to those followed by schemes. But it is still early days and to continue driving this change we believe that trustees and sponsors should be engaging with insurers at an early stage to signal the importance they place on addressing the underserved members and giving them the best possible support,” said Kelly Hurren, Partner and Head of Member Options and Support at Aon.
Positivity among market participants appears to be carrying over into the new year. Almost half of those who took part in a survey conducted by the Pension Insurance Corporation (PIC) said they expected the bulk annuity market to reach between £50bn and £60bn in 2025.
“As the results of our polling show, the bulk annuity market is now firmly established as a £50bn a year market,” said Mitul Magudia, Chief Origination Officer at PIC.
“It’s worth noting that the market volume size range reflects the uncertainty about the timing of larger scheme transactions. One or two of these transactions in a year will likely push the market up to £60bn.”
