Next year is set to be the “biggest year yet” for pension buy-ins and buyouts, pension consultants at LCP have said.

According to new research, LCP found that UK company pension schemes have transferred the defined benefit pension risks of over one million people to insurers.

The pensions of over one million people have now been insured through bulk annuities as a result of UK company schemes transferring £70bn of assets to insurers in the past 10 years, around five per cent of the c£1,500bn of total DB pension assets.

The firm’s research has predicted that the buy-in, buyout and longevity swap market is likely to significantly increase in 2017, with volumes estimated to exceed £15bn for the first time, topping a record high of £13.4bn in 2014. It would also be fifteen times the £1bn of annual volumes ten years ago.

LCP further estimated that volumes for 2016 will be around £9bn for buy-ins and buyouts and longevity swaps at £1.6bn to date.

LCP partner Charlie Finch said: “The move to insuring the liabilities of pension schemes has been a quiet revolution over the last decade as pension scheme trustees have taken action to reduce risk and improve benefit security. Pension scheme members see no change in the amount of their pension benefits as a result of a buy-in or buyout, though may be reassured to know that their retirement income is now backed by a regulated insurance company subject to strict capital requirements rather than simply relying on their former employer to fund their pension.”

“The appetite for pension schemes to de-risk via buy-ins and buyouts has grown phenomenally over the past 10 years. Many schemes have self-sufficiency or buy-out as their ultimate target and a series of well-timed buy-ins can be an effective way of getting there. For example, following the Brexit vote in June there was a short-lived opportunity for fast-moving pension schemes to purchase buy-ins at a reduced cost,” Finch added.

“Our optimism for 2017 has three short-term drivers adding to the longer term trend of defined benefit schemes taking action to reduce risk – first, pensioner buy-in pricing is currently at its most favorable level for five years for schemes holding gilts; second, insurers are reporting record levels of new enquiries from pension schemes looking to de-risk; and third insurers have increased capacity available for new transactions. Put these together and 2017 looks set to be the biggest year yet for pension buy-ins and buyouts.”

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