'Resilient' bulk annuity market expected to have exceeded £30bn in 2020

Final volumes from the bulk annuity market in 2020 are estimated to have broken £30bn but fallen short of the £43bn achieved in 2019, according to a Q1 update on the market from Aon.

The report noted that the bulk annuity market demonstrated significant resilience in 2020 despite the impact of the coronavirus pandemic, with volumes of £28bn having been reported by the end of January 2021 and further disclosures expected.

The report predicted that 2021 would be another strong year for the bulk annuity market, stating that business volumes could surpass the £30bn mark for the third year in a row.

Using the Aon Retirement Plan’s £510m transaction with Scottish Widows as a case study, the provider noted that repeat buyers had an edge in 2020 as their established working procedures allowed them to “deal with unpredictable markets, making swift and effective decisions with a robust governance structure”.

This allowed the trustees of the scheme in question to pause the transaction in March 2020, when market volatility presented liquidity concerns for asset trades, before restarting the process four months later and agreeing a ‘price-lock’ mechanism before completing the transaction in November.

Aon said it expected the dominance of small- to mid-sized pensioner-only transactions to subside after the end of lockdown, with a resurgence in scheme buyouts predicted after 2020 saw transactions requiring less sponsor funding or decision-making being more common.

The provider said that, in practice, it was likely that the new year would see a combination of “new schemes exploring deals” and “a backlog of 2020 auctions that were paused but may yet be restarted”.

Looking even further ahead, the report argued that the potential lack of lockdowns and other economic hurdles could lead to a stronger upturn in 2022, though it noted that “outcomes here are difficult to forecast given the dependency on, for example, insurer capacity and the availability of specific asset opportunities”.

It added: “We expect there will be opportunities this year for schemes of all sizes but, of course, in a busy marketplace, the best outcomes will be achieved by those schemes which run a well-planned process and are ready to move quickly.”

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