Articles - What can we expect from the derisking market in 2024


Jenny Neale shares her predictions on what we might expect from the de-risking market over the next year. Prediction 1 - Growth of an already busy market. As Sarah Collison mentioned, 2023 was a record-breaking year with over £50bn of bulk annuities written. This demand from the market is expected to only increase, with many schemes having changed their investment strategy to try to lock in favourable funding position and having spent much of 2023 preparing data and benefits for going to market in the coming months.

 By Jenny Neale, Director, Transactions at WTW

 Of course, there is a risk that future demand could grow to such an extent that some schemes may struggle to get traction in the market. As Greg Robertson described in his article: The dynamics of a busy bulk annuity market, we believe that this risk is small, with current insurers previously having evidenced they can scale up to meet demand, and with prospective new insurers adding further capacity.

 We have already found that following the proposed Mansion House Reforms that a number of pension schemes with strong sponsors have initiated a fresh review of their long term target and we may find more schemes choose to seek value in running on their pension scheme and delay their move to buyout. Where this is the case it is likely that these schemes will not wish to run unrewarded risks and consequently look to hedge the demographic risks using longevity swaps.

 Overall given the stepped change in funding position for many I expect another busy year with growth even relative to 2023, with around £60bn of bulk annuities transacted and £20bn of longevity swaps; meaning 2024 has the potential to be the busiest year ever in the de-risking markets.

 Prediction 2 - Increased focus on non-price factors when selecting an insurer
 Whilst price will remain an important consideration, with more schemes considering full scheme buy-in as a stepping stone to buyout I expect that trustees will increasingly focus on other differentiating factors, such as insurer brand and reputation, member experience and financial strength, when selecting the right insurer for their scheme.

 With the increase in full scheme buy-ins and buyouts over recent years, member experience should be front of mind when going through a transaction process. This is particularly true from the point of buyout when the insurer will be dealing directly with members, but even during buy-in it’s important to ensure that the insurer processes allow member quotations to provided quickly and efficiently, and ideally with any online support already available from the scheme.

 As insurers grow their new business capacity, it’s incredibly important that their implementation and administration teams are able to support the growth – this is an area of the market we’re keeping a close eye on at the current time.

 Differences in member experience
 The good news is that insurers have been, and continue to, develop their administration capabilities to drive up service standards for members, with our 2023 administration survey showing all insurers provide an ‘Acceptable’, ‘Good’ or ‘Excellent’ standard of administration. However, standards vary, and differences do exist between insurers which could be critical when selecting an insurer for some schemes depending on each scheme’s circumstances and what members are currently used to. For example:

 Some insurers are able to continue to offer pension increase exchange option at the point of retirement, others will consider doing so depending on the scheme specifics, and others are not able to offer option for future retirements.

 A number of insurers now offer online functionality including quotations, with others investing in developing this area.
 Some insurers offer in person member forums, whereas others have invested more heavily in the quality and clarity of their communications.

 Some insurers have inhouse administration teams whereas others use one or more third party administrators – understanding the pros and cons of each approach is key.

 Prediction 3 - Opportunity for schemes of all sizes
 Despite an increase in the volume of full scheme buy-ins, I’m pleased to see insurers continue to be able to support schemes of all sizes. As we move into 2024, I expect this range to widen further with more transactions of multi-billions for some of the UK’s largest pension schemes, and with smaller schemes still being able to find a suitable counterparty.

 That said, in a busy market, the design of the quotation process will need adapting for each scheme’s situation to maximise insurer engagement, particularly if benefit features or the size of scheme means it is less attractive. As Greg outlined in his article, it will be more important than ever to work with a transaction adviser who understands the market and the differences between insurer offerings, and can think strategically to prioritise and engage with the right insurers and adapt the strategy to ensure the best possible outcome for each scheme.

 Prediction 4 - Superfund transactions for the right schemes
 It’s an exciting time in the de-risking market as we find innovative solutions to meet the needs of all clients, as evidenced with the first superfund transaction in 2023. 2024 will be a crucial year in the development of the superfund market as we work with clients to identify whether this option suits their particular circumstances. Whilst I think it’s highly unlikely that we see superfunds becoming a mainstream endgame for the majority, a handful of transactions in 2024 could potentially lead to some momentum in the space in the years to come.

 As always, we will be watching markets closely to see if our predictions come true over 2024.

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