Articles - Paradigm move for buy in market as volumes up to 50bn a year


The buy-in market is expected to exceed £50bn every year for the foreseeable future, and could top £70bn in some years (the record year so far is £44bn in 2019). Insurer pipelines today are more than double their level a year ago. More multibillion-pound buy-ins are expected, following the announcement of the RSA pension schemes’ £6.5bn buy-ins. We expect 80% of future bulk annuities to be whole-scheme buy-ins or buy-outs, in stark contrast with the last 16 years having been being 80% pensioner-only buy-ins.

 By James Mullins, Partner and Head of Risk Transfer at Hymans Robertson

 2023 will see a paradigm shift in the pension scheme buy-in market with volumes expected to reach record highs for years to come, according to Hymans Robertson, as it issues its annual risk transfer report today. The leading pensions and financial services consultancy’s report shows a dramatic transformation in the market, with a tidal wave of demand leading to record buy-out volumes exceeding £50bn, with the potential to hit £70bn over the next few years.

 The material increase in long-term interest rates over the last year means that many pension schemes have seen significant improvements in their funding levels. On average, pension schemes are now only roughly five years away from being able to afford to fully insure. Many pension schemes have already reached the position where they can fully insure and so are moving quickly to complete buy-outs to lock down risk for their members. Popularity for buy-ins was already increasing, but this shift in market conditions has meant pension scheme demand has leapt to its highest ever level.

 Commenting on the findings from the risk transfer report, James Mullins, Partner and Head of Risk Transfer at Hymans says: “The buy-in market is close to entering its 18th year and its certainly now in a whole new phase of adulthood. The recent increase in demand from pension schemes to fully insure their members’ benefits has been incredible. As a result, we expect that by 2030, half of all of the UK’s private sector DB pension scheme liabilities will have been insured, covering 5 million members’ benefits and close to £1 trillion of liabilities.”

 Commenting on the changing market and the impact on members and insurers, James continued: “Excellent pricing remains but it is no longer simply a buyer’s market. Pension schemes need to be smarter than ever in the way they prepare and approach the market for buy-in quotations. For example, upfront shortlisting of insurers can be a powerful strategy in this new market phase. And for some smaller pension schemes, exclusive partnerships will deliver the best results.

 “Pension scheme members in the UK will see a material shift over the next 10 years. Up until now, their pensions have been managed and paid by a group of trustees, linked to their previous employer. However, going forwards, their pensions will be increasingly managed and paid by insurance companies. Removing the link between their pension and previous employer will feel like a significant change to many members, so it needs careful communication to set out the benefits. We expect over 5 million pension scheme members to be transitioned to the UK insurance regime over the next 10 years, with oversight from the Prudential Regulations Authority and the Financial Conduct Authority.”

 A copy of the Risk Transfer report can be seen here
  

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