Pension risk settlements reached record high of over £54bn in 2020

The UK pension scheme risk settlement market hit a new record-high figure of over £54bn in 2020, and 2021 could be even bigger, according to analysis from Aon.

The provider said it was possible to conclude that 2020 had broken the £52bn total achieved in 2019 now that all information on deals was available, while it cited “early indications” in its forecast that the new year could be worth even more.

It also noted that the feat had been achieved despite the market having to cope with a global pandemic and “a general lowering of expectations regarding deals”.

Aon senior partner and risk settlement group head, Martin Bird, said: “Despite all the problems and a general lowering of expectations regarding deals, 2020 saw the UK pension scheme risk settlement market – bulk annuities plus longevity swaps – reach over £54bn.

“This result certainly proves the market’s resilience, as well as the real need for risk settlement by schemes and their increasing understanding of how to access the market. However, the market also changed with fewer jumbo deals than we saw in 2019, but a 50 per cent increase in the transactions below £1bn in size.

“That meant more small and mid-sized deals as well as increased numbers of pensioner buy-ins rather than full scheme buyouts. There was also a strong trend towards repeat buyer transactions, underlining that well-prepared schemes with nimble governance arrangements were particularly well placed to capture market opportunities.”

Bird stated that this could be perceived as “a sure sign of the market’s increasing maturity” and improvements in developing quick and efficient transaction processes which might then make transactions attractive to insurers.

Martin Bird continued: “Now in 2021, it seems certain that everything we have seen over the past year must have added to the drivers for pension schemes to seek risk settlement measures. The Covid-19 pandemic is potentially the largest combined economic and political shock to the UK since the immediate aftermath of the Second World War.

“In that context, it is not surprising that we are seeing huge early appetite from schemes, and our expectation is that 2021 could be another record-breaking year for the industry.”

Aon is not the first to suggest that the ongoing year could break the record, with Mercer having forecast in December that the 12-month period could see the pension risk transfer market reach up to £60bn.

Although the year saw more in the way of smaller transactions, larger deals were still completed, with Barclays securing a £5bn longevity swap agreement with Reinsurance Group of America in December.

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