Bulk annuity deals are expected to hit £15bn in 2018 as “mega-deals” look set to swell the market, according to Willis Towers Watson.

The firm expects at least five deals to surpass the £1bn mark, significantly above 2017’s largest deal of £750m, driven by attractive pricing for buy-ins and a strong year for longevity hedging.

In addition, Willis Towers Watson are estimating over £10bn of liabilities to be hedged throughout 2018, and believes there will be new entrants to the market as a result.

Willis Towers Watson senior director in its de-risking team, Shelly Beard, said: “We are currently seeing the best pricing for buy-ins for a decade. Pension schemes investing in a buy-in are able to make significant gains relative to investing in gilts and also manage longevity risk.

“All of this is being driven largely by insurers deriving a higher investment return through sourcing direct investments. Such investments include funding student housing, airport landing slots and wind farms, which provide a good match for pension payments."

Beard added that pension schemes are taking advantage of attractive bulk annuity pricing and competition between insurers, as well as giving members flexibility and close buyout deficits.

Despite this, the firm doesn’t believe we will hit the £25.4bn of liabilities hedged in 2014, as schemes continue their derisking journey’s throughout 2018.

Beard added: “We’re currently helping several pension schemes for whom a longevity swap has minimal cost relative to their Technical Provisions longevity assumptions – whilst this assumption is due to be updated at the next valuation, the opportunity to remove the risk instead of improving the funding level is compelling for the respective trustees and the sponsors.”

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