Over the last 10 years, over £250bn of liabilities have been transferred to the bulk annuity market with 2023 the busiest year on record, with just shy of £50bn of transactions completed. Having observed a slightly slower start to 2024, we recently asked eight insurers active in the market for their expectations of business volumes this year, with the general consensus being a slight reduction on the 2023 figures with most expecting the market to close at between £40-50bn (see figure 01). WTW’s own deal tracking suggests around £45bn but in practice, it will hinge on the success and timing of a handful of larger deals that are currently in the market. At £45bn this will make it the second busiest year ever, and by some margin if historic years were adjusted for the more recent rise in risk free rates – demonstrating both trustees’ and sponsors’ appetite to transact and insurers’ appetite to take on the risk.
Whilst demand remains high – as evidenced by the expected total volume of business – the market continues to be able to service this, with opportunities available regardless of the size of pension scheme.
Small schemes can take advantage of one of the streamlined propositions that have been developed by four insurers. These aim to support an efficient process from initial quotation all the way through to execution. We have completed transactions using three of the new propositions – Clarity (Aviva), Beacon (Just) and Flow (L&G) – and we are currently advising on a deal looking to transact via Mosaic (PIC). This experience enables us to provide informed advice to support schemes in ascertaining which of the propositions is the best fit for them and potentially selecting a provider at the outset of a transaction, which turns on its head the traditional transaction model whereby the insurer is selected towards the end of a process. We can then use our visibility of pricing across the market – and at all sizes – to give robust advice on whether value for money has been achieved.
At the other end of the market, very strong reinsurance terms are providing very attractive pricing for the largest deals. This mirrors our experience in the longevity swap market – see below.
To date this year there have been fewer medium sized deals, so as insurers look to diversify their portfolios, we expect to see strong competition for those schemes between £200m and £500m – which can only be positive for schemes of this size looking to approach the market.
In recent years we haven’t seen many new entrants to the bulk annuity market, but with Royal London announcing its entrance into the market in September 2024 and Brookfield and Utmost expected to formally enter the market in the near future, we are already seeing the effect on market dynamics and can expect more of a shake up in the coming months. From discussions with Royal London and the two other potential new entrants, we have a good understanding of their different propositions, with each targeting different market segments and scheme profiles.
If both of the remaining potential new entrants join the market, this would be great news for pension schemes across the board. In total this means that, before the end of the year, we expect to have 11 insurers providing quotes on deals, more than ever before in the UK and showing the vibrancy of the market. This would provide trustees and sponsors with more choice and increased competition should drive more innovation and better outcomes for schemes.
With full-scheme buy-ins now dominating the market, the move to buyout and therefore member experience is paramount for trustees. Increasingly trustees will place a high degree of focus on the member experience in making the insurer selection, using our detailed research into insurer administration capabilities to support this. Whilst there are differences between the insurers which should be explored and understood, we find insurers typically set themselves high standards for their administration capabilities, which will be of great comfort for trustees looking to the future for their members.
An area where we have seen significant developments recently is insurers’ online capabilities. Our recent survey of insurers shows over half of the market now provides policyholders with instantaneous retirement or transfer value quotes online – a marked increase from the position just last year (see figure 02). Ensuring continued access to retirement quotations and transfer value quotations at the click of a button is very valuable to members.
The focus of our themes for 2024 has naturally been on the bulk annuity market, as buyout is what we see the majority of schemes targeting over the longer-term, but there continues to be a lot of activity in the longevity swap market.
For schemes considering this market, pricing is currently reflecting the high level of competition. The risk fee charged by reinsurers, over and above their best estimate of liabilities, has continued to follow a downward trajectory and is currently the lowest we have ever seen. Furthermore, whilst each transaction is necessarily bespoke, efficiency of execution has improved as the market continues to mature and experience is built up. We currently have over £15bn of longevity swaps in the market and expect 4 deals to close before the end of 2024.
The outlook for de-risking in the UK remains optimistic, with sustained levels of strong pricing and opportunities across all deal sizes and types. Please speak to Danielle, Gemma or your WTW contact if you’d like to discuss how we can support you in engaging with these markets.
