Insurance companies and banks are expected to take on £100bn-worth of liabilities from defined benefit (DB) pension schemes before the end of 2017, Hymans Robertson has said in its latest Managing Pension Scheme Risk report.

The report for Q4 2012 said that competitive pricing and increased demand from DB schemes to offload their risk were factors that would stimulate risk transfers of up to £100bn collectively in less than five years time.

Hymans Robertson also reported a total of £6.7bn pension scheme risk transfer deals completed in 2012 and expects the figure to grow significantly during 2013 and beyond, as several multi-billion pound deals are being tendered and due to complete this year.

The results also found that the average value of deals over the last five years has been around £8.5 billion a year.

Insurance companies and banks have taken on the risks associated with over £50bn of pension scheme liabilities since the risk transfer market took off in 2006/2007.

Buy-ins and buy-outs covered around £4.5bn of pension scheme liabilities in the 12 months to 31 December 2012; and longevity swaps covered almost £20bn of pension scheme liabilities since 30 June 2009.

Tate & Lyle’s £347m buy-in in Q4 2012 and BAE Systems’ £3.2bn longevity swap in Q1 2013 became the 17th and 18th FTSE 100 companies to complete material risk transfer deals for their DB schemes, both of which were with Legal & General.

The consultancy firm predicts that half of all FTSE 100 companies will have completed a material pension scheme risk transfer deal by 2017.

Hymans Robertson head of buy-out solutions James Mullins said that as banks and insurers offer more flexibility, deals will become increasingly affordable for many UK pension schemes.

He added: “It is a similar story in the longevity hedging market. Our clients are finding that the competition in the market is leading to some attractive pricing for removing longevity risk and this is a key driver for the recent level of longevity swap activity. We anticipate that this pace of activity will continue to accelerate and expect to see a number of large transactions complete this year.

“The market will be further buoyed as demand for pension scheme risk transfer becomes a key consideration for scheme trustees. Many trustees are now working towards a secondary 'self-sufficiency' funding target which they are then using as a benchmark to measure risk. Putting in place a longer-term strategy can also ensure that trustees are ready and able to make decisions quickly, to capture any short term opportunities to reduce risk when market conditions improve.”

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