Bulk annuities forecast to total £30bn-£50bn per annum over next five years

Aviva has estimated that bulk annuity transactions will total £30bn to £50bn per annum across the market over the next five years, having reported 'record sales' of bulk annuities amid the pandemic.

The group stated that, at £2trn, the total value of defined benefit (DB) pension scheme labilities is "very high" and expected to result in a "high level of demand" for bulk annuities in the next few years.

The comments were made as part of the group's preliminary financial reports, which confirmed that the insurer had completed a 'record' £5.9bn of bulk annuity deals in the UK and Ireland in 2020.

This is equal to a 48 per cent increase on the £4bn reported in 2019,with one third of these sales, around £278m, representing the value of new business.

The group’s results also confirmed, however, that there had been a 3 per cent decrease in the UK and Ireland Life operating profit, from £1,974m in 2019 to £1,907m in December 2020.

Despite this, Aviva emphasised more broadly that operating profits had remained "resilient" amid the pandemic, thanks to the "strong performances" in its bulk purchase annuities and savings and retirement business, which reported 'record' net flows of £8.5bn, up from £7.5bn in 2019.

Indeed, the group also reported that assets under management from its bundled workplace pensions business had grown by £10bn since 2019 to £81bn, with an added 246,000 scheme members.

Commenting on the accounts, Aviva chief executive officer, Amanda Blanc, stated: “Over the past year we have supported our customers in the most challenging of circumstances.

"Across the whole of Aviva our people have been outstanding and I cannot thank them enough for all they have achieved.

"Our performance in 2020 demonstrates the resilience of our Core businesses and our growth potential.

"We delivered record sales in group protection; record sales of bulk purchase annuities; and record net flows in savings and retirement, where we are the largest provider of workplace pensions in the UK."

In addition to this, the group accounts have recognised a £18m charge in relation to the estimated additional liability arising in the UK DB pension schemes as a result of the requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension (GMP) for former members.

Aviva also reported an increase in its own DB pension scheme surplus, rising from £1.98 in December 2019 to £2.03bn in 2020.

Liabilities for the scheme increased over the past year from £16.79bn in 2019, to £18.09bn in 2020, although this was offset by an increase in the fair value of scheme assets from £18.77bn to £20.13bn.

The accounts also confirmed that, due to different measurement bases applying for accounting purposes in a recent buy-in transaction for the scheme, the premium paid exceeded the valuation of the plan asset recognised, and has been recognised as a loss in the actual return on assets.

The financial update follows the news that the group expects to become a net zero carbon company by 2040, with plans to take immediate action on coal investments.

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