Continued volatility in 2021 could present an opportunity for pensions risk management, with four key areas likely to "shape" the pensions de-risking landscape, according to Willis Towers Watson (WTW).

In particular, the firm argued that the continued pandemic and Brexit readjustments could lead to another year of volatility in investment markets, noting however, that as was seen in 2020, this could present an opportunity for those schemes who are prepared.

As such, it recommended that schemes work in partnership with insurers to monitor market conditions and identify “windows of opportunity” in order to determine if and when it is the right time to act.

It also predicted a further driving down in pricing for longevity swaps and bulk annuity transactions, thanks to increased competition, and the slowing level of mortality improvements seen in recent years, which has led to the lowest pricing relative to pension scheme reserves on record.

In addition to this, the firm stated that it anticipates an acceleration in superfund activity, particularly due to an expected increase in distressed sponsors and pension schemes tackling funding level falls.

More broadly, WTW predicted “another year of high activity” for the de-risking market, despite the funding challenges seen in 2020, reiterating its prediction that 2021 will see £30bn of bulk annuities and £25bn of liabilities covered by longevity swaps.

WTW managing director, Ian Aley, stated: “The pensions de-risking market has proved itself to be incredibly resilient and, while uncertainty will remain in 2021, we don’t see this denting the desire and ability for pensions schemes to complete risk management transactions.

“It remains to be seen what impact Covid-19 will have on longer term expectations for mortality rates.

“For many schemes, the market pricing of longevity will currently look very attractive relative to their funding reserves.

“We therefore expect schemes will continue to look to lock into assumptions which are affordable against their current funding target to reduce future uncertainty as part of their wider hedging programmes.”

Share Story: