The UK defined benefit pensions de-risking market is likely to see £50bn in bulk annuity transactions and £20bn in longevity swaps in 2025, according to WTW’s annual De-risking Report.
Having seen just under £60bn in transactions completed in 2024, the report predicts that buoyant scheme funding positions and new insurer participants in the market will mean more schemes have the opportunity to transfer liabilities in 2025.
While a number of well-funded schemes may plan to run-on for longer in order to take advantage of improved access to surplus, many of those will use longevity swaps as part of that process in order to manage their risk.
“The relatively stable market conditions over 2024 combined with the rise in gilt yields over recent weeks has meant schemes’ funding levels have generally continued to improve,” said Shelly Beard, Managing Director in WTW’s pension transactions team.
“Further, more trustees and corporates have been actively focussing on dealing with their illiquid assets, drafting benefit specifications and cleaning up their data. Alongside this, insurer pricing has remained attractive for schemes of all sizes,” Beard continued.
“All of this is culminating in more schemes being ready to approach the insurance market to undertake full scheme buy-ins, with the increase in demand expected to be met in part by the increase in participants in the market. Moreover, strong levels of longevity swap activity are also expected to continue. The proposed Mansion House Reforms have led to a number of pension schemes with strong sponsors taking a fresh look at their long long-term target and deciding that running on for longer may be the preferred way forward, with a longevity swap used as a means of mitigating a key remaining unrewarded risk,” she added.
The report anticipates a number of other developments in the UK pensions de-risking market this year, including a real focus on the buy-in to buyout phase, continued development and innovation for smaller schemes, more transactions outside of the traditional buy-in arena and regulation continuing to influence and shape the market.
