Pension risk transfer demand anticipated to increase further in 2022

The UK pension risk transfer (PRT) market saw around £22bn of retirement income secured in H2 2021, according to Legal & General’s (L&G) latest Global PRT Monitor.

This resulted in an estimated total transaction volume of almost £30bn in 2021 overall.

The monitor, run by L&G Retirement Institutional and L&G Retirement America, stated that H2 2021 was “one of the largest and busiest six-month periods in the history on the market”.

It pointed to several factors for the growing demand, such as improved pension scheme funding levels and competitive longevity reinsurance pricing.

L&G said that it anticipated that volumes would continue to grow in the UK.

This growth was predicted to be driven by various factors such as market movements, asset availability and the number of large pension schemes coming to market.

The ‘mega-transactions’ of over £1bn in 2019 demonstrated that the market has sufficient capacity for higher volumes and numerous multi-billion-pound transactions, according to L&G.

L&G Retirement Institutional managing director UK PRT, Chris DeMarco, commented: “Last year was another busy year for the UK PRT market, and we expect activity to accelerate in the years ahead.

“We believe the market will go from strength to strength as more schemes move closer to their endgame and full buyout, with new innovations bringing increased flexibility and affordability.

“The experience of the past two years has underlined the fundamental purpose of insurance: protecting the retirement income of members during one of the most uncertain periods in living memory.”

The US saw similar growth over the same period as the monitor reported a “potentially record-breaking year for the US” with an estimated $38bn-$40bn in total annual transaction volume, surpassing the $27bn reached in 2020.

The monitor credited this growth to an increased number of ‘large to jumbo’ transactions and the improved funding status of defined benefit pension schemes, due to strong investment returns and rising interest rates.

L&G Retirement America president, George Palms, commented: “Last year’s potential record transaction volume in the US was driven by large deals.

“The story in 2022 will be the acceleration of deal volume of all sizes, as plan sponsors take advantage of an increase in funding status and rising interest rates.

“A robust pipeline in the first quarter provides early evidence of this strong demand.
“We also anticipate an upswing in plan-terminations – the final step in the de-risking journey.

“Plan sponsors contemplating a risk transfer should consider the unique opportunity the next year presents, as financial market conditions and competitive market dynamics remain favourable.”

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