Pensions - Articles - Bulk annuity market exceeds GBP24bn in transactions

For the first time in history the bulk annuity market has exceeded £24bn in scheme buy-in and buy-out transactions, representing a doubling in the market compared to previous years where the annual volumes have been of the order of £10-£13bn.

 Barnett Waddingham’s annual bulk annuity research highlights a step-change in the volume of bulk annuity activity rather than a gradual increase, with this heightened new level expected to continue during 2019 and beyond.

 2018 saw attractive pricing opportunities for schemes to purchase a bulk annuity, which has carried over into 2019. For example, pensioner buy-in pricing has been at historically competitive levels relative to gilts, meaning the exchange of low risk assets for a buy-in can be compelling for many schemes.

 Also ‘mega’ transactions, noticeably absent in 2017, re-emerged in 2018 with four transactions over the billion pound mark. Almost 40% of business written was for buy-outs, compared to 20% in recent years, and included some high profile cases where the employer had previously gone insolvent, such as the BHS and Nortel transactions.

 Gavin Markham, Partner and Head of Bulk Annuity Consulting, said; “Unprecedented demand to complete de-risking transactions paved the way to a record-breaking year in the bulk annuity market. The improvement in pension schemes’ funding positions, as they continue to mature, is a significant factor in the increased level of demand supported by some extremely attractive insurer pricing by historical standards.

 “Schemes are typically targeting a low risk position in their journey planning, with trustees and employers increasingly focussed on end-game planning. Defining the end-game helps provide a robust decision-making framework for a transaction. Liability management exercises can feature in the journey and materially enhance the affordability of a transaction.

 “The bulk annuity market continues to evolve and provide opportunities for those with clear objectives and a considered route to transaction. Demand for de-risking through annuities is likely to increase as schemes mature further. It is essential for schemes to understand the market dynamics and how insurers operate. Preparing well and demonstrating transaction readiness will be key in gaining insurer appetite and positioning the transaction positively relative to other schemes.”

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