Already in 2019, LCP has been lead adviser on over £8.5bn of completed deals – more than the total annual volumes for the whole market prior to 2014. This has included leading transactions for the pension schemes of Commerzbank / Dresdner (£1.2bn full buy-in), Marks and Spencer (£1.4bn of buy-ins) and QinetiQ (£690m buy-in). Other notable deals in H1 2019 include the £4.6bn partial buy-out by the Rolls-Royce UK Pension Fund with L&G, the largest bulk annuity ever conducted in the UK.
Increased affordability has been the key driver of the acceleration in activity. LCP estimates that the buy-out funding position of the average FTSE100 UK pension scheme has improved by around 10% in the past two years, making a transfer of some, or all, of the liabilities to an insurer an increasingly viable option. For the FTSE100 companies alone, LCP projects that around 30 schemes will reach or be close to fully funded on buy-out within the next decade equating to £300bn of pension liabilities.
Commenting, Charlie Finch, Partner at LCP, said: “The high level of de-risking activity in 2018 has carried on at a ferocious rate into 2019, with many companies and trustees exploring buy-in and buy-out opportunities. Stalling life expectancies, good asset performance and competitive pricing between insurers have driven affordability to record levels.
“Looking ahead, we see no let-up in activity as the market enters a new phase. Our team has never been busier having closed over £8.5bn of deals so far this year and insurers are recruiting heavily into their quotation teams to provide additional capacity. Large transactions by blue-chip companies are driving this new phase as they seek to de-risk their pension liabilities. It is difficult to see this momentum being halted.”
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