Pension risk transfer market to hit up to £60bn in 2021

The UK pension risk transfer market could reach up to £60bn in 2021 through bulk annuities, longevity swaps and new risk transfer solutions, according to forecasts from Mercer.

The firm has predicted continued growth in risk transfers during 2021, stating that increased activity will likely be driven by an increase in demand and innovative and streamlined processes, and could lead to the "busiest year on record".

In particular, it predicted that there would be better affordability as more schemes mature, increased demand from schemes and sponsors following the pandemic, and innovation to meet the challenges faced by defined benefit (DB) schemes.

Mercer UK head of risk transfer and DB journey planning, Andrew Ward, commented:
“We predict that 2021 will be the busiest year on record with the return of ‘mega’ buy-in and buyout deals and longevity swaps.

“Given the growing range of risk transfer solutions available to trustees and sponsors, it is more important than ever that advisers provide clear guidance to help them identify the right path to achieve the best outcomes for all stakeholders."

Ward emphasised that despite the pandemic, 2020 is also "within touching distance" of being the busiest ever for risk transfer to insurers and reinsurers, with roughly £50bn of transactions, including £30bn of bulk annuities.

He continued: “In a year like never before, risk transfer has remained high on the agenda for trustees and sponsors.

"The big winners have been those well-prepared schemes that have made volatility their friend and thus benefited from pricing opportunities created by market volatility during the pandemic."

Ward also noted that latent demand for risk transfer continues to grow strongly with over £2trn of DB liabilities maturing over time, estimating that the total DB uninsured universe in 2030 will be around half the size it is today.

He added: “Not every scheme will or should buy out and not every scheme should look in detail at longevity swaps, consolidation or member options.

“However, every trustee and every sponsor should be aware of these options, alongside other alternatives such as LDI, CDI, fiduciary management and DB master trusts, in order to devise the right long-term strategy for their plan.”

The firm have also predicted that streamlined processes for both insurers and advisers will drive sustained demand for smaller buyout transactions into 2021, despite the anticipated return of mega deals.

Adding to this, Mercer principal, Ruth Ward, said: “We have also helped small schemes under £5m gain more visibility with insurers and successfully capture price opportunities to achieve their buyout goals.

“For those further away from their end goal, a broad spectrum of consolidation options including professional trusteeship, fiduciary management and DB master trusts can improve smaller scheme governance and member outcomes.”

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