Two in five of schemes expect a de-risking transaction in next three years

Pension de-risking transactions have been identified as the third top priority for pension scheme trustees and corporate sponsors over the next three years, in research by Willis Towers Watson (WTW).

According to the research, two-fifths (40 per cent) of pension schemes are expecting to complete a de-risking transaction within the next three years, potentially representing more than £600bn in assets.

A further 33 per cent of schemes stated that they anticipate completing a bulk annuity, whilst 11 per cent are expecting a longevity swap.

In addition to this, over a quarter (28 per cent) of schemes stated that they had already completed a bulk annuity, although just 5 per cent had finalised a longevity swap.

The firm stated that de-risking transactions are set to become "increasingly important", noting that whilst the issue ranks seventh in the list of priorities over the next 12 months, it is listed as the third top priority when considering a three-year time horizon.

Commenting on the findings, Willis Towers Watson Pensions Transactions Team senior director, Shelly Beard, stated: “This research backs up our own experience that shows more and more schemes approaching the risk transfer market.

“Pricing remains attractive and more schemes are emerging from the short term focus necessitated by the early stages of the pandemic, to focus on longer term future planning and risk management.

“Our survey data also shows that the proportion of schemes whose endgame is buyout is up modestly compared to last year, with a corresponding decline in those planning to run-off, perhaps reflecting the fact that the unprecedented events of 2020 have caused some to reconsider their view of run-off risk.”

Beard emphasised that 2020 has been a "very busy year" for the de-risking market, with over £50bn of liabilities expected to be transferred to the insurance market through longevity swaps or bulk annuities.

She continued: “If 40 per cent of all pension schemes choose to undertake a transaction over the next three years as our survey suggests, that could equate to schemes with more than £600bn of assets.

“Even if most will only transact on a portion of their liabilities, this still indicates an incredibly busy marketplace and compares to around £300bn of liabilities transferred over the entire history of the bulk annuity and longevity swap markets so far.”

Separate polling from a WTW conference in September has also shown an increasing interest in pension superfunds since the introduction of the interim regime by The Pensions Regulator in June.

It found that almost three quarters (71 per cent) of trustees and pension directors believe that the introduction of superfunds is a positive development for scheme members, compared to 62 per cent in the same poll conducted in June 2020.

In addition to this, 20 per cent of schemes have already had discussions as to whether they would be a potential option for their scheme, nearly double the 11 per cent recorded in June.

Commenting on this, Beard stated that there is a "clear interest" in superfunds from a "significant minority" of schemes, noting that those with a weak or uncertain covenant who can't afford buyout may be tempted as this new area becomes an option.

She added: “It’s interesting to see how even since June, when the Regulator’s guidance on superfunds was first published, attitudes have become increasingly positive to this new market development.”

This comes as, Pensions Minister, Guy Opperman, predicts a further pensions bill in the current parliament, which would constitute superfunds legislation.

    Share Story:

Recent Stories


Responsible investing
Laura Blows speaks to Standard Life head of investment solutions, Gareth Trainor, about the latest responsible investment trends and developments for providers, pension schemes and their members
ESG and member engagement
Laura Blows speaks to Legal &General Investment Management head of DC, Emma Douglas, and Nest Insight Director of Research and Innovation, Jo Phillips, about member attitudes towards ESG and how this may impact upon pension fund investments