Pension buyouts predicted to quadruple over next decade

The value of pension scheme buyouts is set to quadruple over the next 10 years from the estimated £135bn in the 2010s, Mercer has predicted.

It said that the increased risk transfer activity could increase to around £540bn in the 2020s and would be primarily driven by more affordable pricing as schemes mature.

Furthermore, the market for smaller scheme buyouts remains active.

Mercer stated that the total value of risk transfer deals in 2019 will total around £50bn, almost double that of 2018, with the bulk annuity market set to exceed £40bn.

Individual DB to DC transfers are predicted to reach more than £20bn.

“The next few years are looking bright for those schemes wishing to insure their members’ retirement income,” commented Mercer partner, David Ellis.

“As the UK’s DB schemes mature, the length of insurance contracts reduce, making them more predictable and cheaper to buy.

“Despite the increased demand, there is still capacity in the market for well-prepared schemes.”

This year saw the UK record for a bulk annuity deal when Telent and the trustees of the GEC 1972 DB scheme completed a full buyout with Rothesay Life worth £4.7bn.

Altogether, there were around a dozen deals worth over £1bn in 2019.

Ellis added: “Schemes that want to take risk off the table need to do their homework before they approach insurers.

“Key steps include understanding the range of options available and choosing the best approach for the scheme, putting the right governance and decision-making structures in place and getting data and benefit information ready for transaction.”

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