Whilst buy-out funding levels and demand for insurance remains high, LCP estimates that increased interest in longer-term run on and alternative endgames will have a smoothing effect on demand, leading to volumes averaging out at broadly 2024 levels over the next decade (with some upside driven by the endgame decisions of the largest schemes) – see chart below.
Furthermore, LCP estimates insurer capacity has expanded to comfortably support over £50bn of annual new business at competitive pricing. New business resource, which had previously been a key insurer constraint, has improved due to established insurers ramping up their operations and streamlining their processes, plus three new entrant insurers with potentially one more to follow which would take market participants to a record 11 insurers.
These shifting dynamics are resulting in:
• Insurer participation rates bouncing back for schemes of all sizes, despite transaction numbers doubling in just three years.
• Full buy-in pricing being at its best level in years outside of a crisis period, creating opportunities for schemes of all sizes.
• Improving member service levels as insurers develop member-focused aspects to better differentiate their propositions.
Despite the attractive conditions for schemes seeking to transact, LCP warns that there are key challenges for schemes in the post-transaction phase as the number of schemes transitioning to buy-out is set to double over the next few years. As these pressures become more pronounced schemes will need to plan even more carefully to avoid post-transaction “bottlenecks”.
Charlie Finch, Partner and report author, commented: “Last year we saw a seismic shift in the market with demand for buy-ins and buy-outs rocketing on the back of improved funding levels. Coming into 2024, we’ve seen dynamics stabilise and volumes reach ‘cruising altitude’. As schemes assess their strategic endgames and insurers ramp up their capacity, we see a healthy and buoyant market that serves the needs of schemes moving to insurance – both now and in the future.”
Imogen Cothay, Partner and report author, added: “The shift in the market dynamics is bringing opportunities for pension schemes. Insurer participation rates have bounced back as insurer capacity has expanded to support over £50bn of volumes at competitive pricing. This has led to the most competitive full scheme pricing in years and has given schemes the leverage to seek improved insurer commitments in key priority areas such as member service.”
LCP projection of buy-in and buy-out volumes over the next decade
Compared to last year, the demand profile (gold bars) is flatter than previously projected (grey bars) but at the same aggregate level over the next 10 years.
LCP Pension Risk Transfer Report 2024
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