Pensions - Articles - Pandemic fails to dampen buy in buy out market


2020 is set to be the one of the biggest years on record for the buy-in and buy-out market despite Covid-19, according to LCP’s latest pensions de-risking report. LCP predicts that volumes in 2020 will reach £20bn to £25bn, in part driven by attractive pricing in the wake of the pandemic. This has the potential to exceed the £24.2bn in 2018 which would make 2020 the second largest year on record after £43.8bn in 2019.

 LCP’s annual analysis of the buy-in, buy-out and longevity swap market in the UK shows the pandemic pushed buy-in pricing to record levels of attractiveness. Falls in the price of assets that insurers use to back buy-ins drove price reductions of 5% or more in March and pricing relative to gilts continues to be materially lower than at the start of the year.
 
 The report highlights that insurer appetite remains high. Whilst most insurers initially reported that 10-25% of transactions were delayed as a result of Covid-19, this has since fallen to less than 10%. There’s been no significant change in insurers’ target business volumes for 2020, and a number of transactions have been accelerated to benefit from favourable pricing opportunities.
 
 The report also highlights that pension plans are on a dual track. Some pension plans have been pushed back on their de-risking journey by asset underperformance but many have been able to continue with their pre-pandemic strategy. 30% of pension plans surveyed for the report said that their pension plans were poised to reach full buy-out or self-sufficiency within 3 years.
 
 LCP’s report also makes a number of forecasts including:
 
 • A trend to more buy-ins covering a subset of a scheme’s liabilities as a stepping stone to full buy-out, as in some cases Covid-19 has hit funding positions and reduced affordability for sponsors to plug buy-out shortfalls.
 
 • Small scheme transactions will increase by 25% in 2020 as demand surges for streamlined transaction processes.
 
 • A rise in “PPF+” buy-outs by pension plans whose sponsor is insolvent but have sufficient funding to insure benefits above PPF compensation levels.

 Charlie Finch, Partner at LCP, commented: “Pandemic panic has not infected business volumes or pricing in the buy-in and buy-out market, with Covid-19 so far proving to just be a bump in the road. Insurers have been operating as normal throughout the crisis and the outlook for H2 is strong.
 
 We have helped nine pension plans complete transactions during lockdown, in many cases accelerated to take advantage of attractive pricing in the wake of the pandemic.
 
 “Of course, we don’t yet know what the long term social and economic impact of Covid-19 will be, but insurer pricing remains better than at the start of the year and we may see further pricing opportunities over the coming months given the tumultuous economic environment.
 
  

Back to Index


Similar News to this Story

Checklist for sponsors of DB pensions looking to run on
Hymans Robertson has published a checklist to help sponsors of defined benefit (DB) pension schemes establish a plan for run-on as they face a constan
Comment on the IFS Pension Review
Mike Ambery, Retirement Savings Director at Standard Life, comments on the Institute for Fiscal Studies’ Pension Review
94 percent view State Pension as an entitlement not benefit
Majority of adults aged 66+ say that Triple Lock is affordable and fair to older generations. Around one in seven rely on the State Pension to provide

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.