De-risking report 2025
At the time of writing, the final figures for bulk annuity volumes in 2024 are not yet confirmed, but our intel suggests that around £48-50bn of liabilities will have transferred to insurers. This means 2024 may surpass 2023’s £49.1bn record and will make the last two years the busiest ever in the market by some margin, particularly if historic years were adjusted for the more recent rise in risk free rates.
The first half of 2024 saw a record-breaking 137 transactions, and with no signs of momentum fading in the second half, the industry is on track to end the year with the number of transactions at an all-time high.
Insurers have demonstrated remarkable adaptability in keeping pace with sustained high levels of market demand, bolstered by the entry of new insurers that will help expand overall supply. Meanwhile, existing insurers remain well-capitalised and have been increasing their resources and streamlining processes to ensure they have ample capacity to accommodate growing deal flow and their associated back-office requirements as schemes gear up to move to buyout.
In 2024, whilst longevity swap volumes (of £8bn) were slightly lower than in recent years by liability, as was the case in 2023 there were four swaps written. In addition, we expect a very strong start to 2025 based on our current pipeline, and overall expect 2025 to revert back to previous levels of activity in the longevity swap market.
Below, we explore key themes that have shaped the market in 2024.
2024 saw a wave of new entrants into the bulk annuity market, building on M&G’s re-entry in 2023.
With Blumont’s potential entry to the market, the number of insurers bidding on deals would reach a record high of 11.
The vibrant and increasingly competitive insurance landscape should help offer trustees and sponsors more choice, drive greater innovation and ultimately better outcomes for pension scheme members.
Over the past couple of years, insurers - most notably Aviva, Just, and L&G - have sought to reduce the operational resources needed to price, execute, and onboard transactions for smaller schemes (although the size of ‘small’ varies by insurer). This includes streamlined contractual terms, execution and onboarding processes, and, for some insurers, standardising data and benefit formats and often requiring exclusivity for the smallest deals.
These measures have enabled insurers to efficiently manage the growing demand from smaller schemes and ensure greater transaction certainty. This investment in their streamlined process for smaller schemes is beginning to pay off - over the first half of 2024, over 80% of all bulk annuity transactions were under £100m. And with nearly 4,000 UK DB pension schemes with assets of less than £100m[1], it’s clear there is a huge amount of potential for growth at this end of the market.
The significant opportunity within the smaller market segment is also attracting attention from other insurers. During 2024, PIC also launched a streamlined proposition for smaller schemes. Additionally, established insurers who have traditionally focused on larger transactions are increasingly exploring smaller deals, while new entrants such as Royal London and Utmost are seeking to expand market capacity.
As the industry embraces efficiency, the smaller end of the market is well-positioned for sustained growth and increased competitiveness.
With the first half of the year characterised by the record number of bulk annuity transactions for smaller schemes, the story of the second half was the dominance of the £1bn+ schemes. At the time of writing, 11 bulk annuity transactions over £1bn have been announced over 2024, with nine of these transacting in the second half of the year. Among these transactions were the headline-grabbing deals for NatWest’s pension scheme, covering a third of its £33bn+ pension scheme.
In addition, over 2024 we led two multiple £bn longevity swaps written, covering over £7bn of pension scheme liabilities.
Since the UK’s departure from the European Union, the Prudential Regulation Authority (PRA), has been consulting on potential reforms to the Solvency II framework, with the aim of refining it to better suit the UK market. These reforms – which create Solvency UK – have now been fully implemented with effect from 31 December 2024.
Solvency UK serves as a refinement rather than a re-write of the existing regime. The changes are expected to enhance the competitiveness of the bulk annuity market, making it a more attractive option for pension schemes approaching their endgame. The full impact of these reforms will become clearer in 2025.
For more information on Solvency UK, read Shelly Beard’s and Tom Collier’s article: What impact will Solvency UK have on the buy-in and buyout market?
In last year’s report, my colleague Jenny Neale, a Director in our Transactions team, made a number of predictions for 2024. How did they hold up? Let’s find out!
Well this certainly turned out to be true! Market volumes largely depend on the number of £1bn+ transactions that come to fruition and in 2024 there was no shortage of £1bn+ deals. As discussed above, when the dust settles, we are anticipating a record number of deals, fuelled by insurers’ streamlined propositions.
Again, this was definitely true, with our team spending much of 2024 helping trustees and sponsors to find the right long-term partner for their schemes and members.
While price remains a crucial consideration, factors such as the insurer’s brand awareness, member experience, ESG credentials, and financial strength are becoming key differentiators. Determining which factors matter most is naturally scheme-specific, and so it’s important to work with a transaction adviser who understands the market and the differences between insurer offerings, so the market engagement strategy can be tailored to obtain the best possible outcome for each scheme.
This trend hasn’t gone unnoticed by insurers. Later in this report, Jenny Neale and Sarah Collison explore the evolving administration services offered by insurers, as trustees seek to obtain the best possible member experience for their members.
Again, Jenny was right on this one. We’ve seen buoyant insurer appetite across the full spectrum of scheme sizes, with some of our small and medium-sized clients attracting bids from as many as seven insurers.
While insurers had reported a record number of £1bn+ schemes in their pipelines in 2024, in practice the number of these deals fell a little short of the hype, and more comparable with the volume seen in 2023. These larger transactions often involve extended lead times and carry heightened execution risks due to their complexity. By contrast, a steadier flow of small and medium sized transactions has helped bolster insurers’ new business volumes, helping to smooth out the swings from “winning” or “losing” on a limited number of large transactions.
It’s a full house. On the back of the landmark first superfund transaction between the Sears Retail Pension Scheme and Clara, announced in 2023 and discussed in our 2024 De-risking Report, 2024 saw a further two transactions for Clara-Pensions:
As Ryan McKenna discusses later, Clara has also expanded its offerings beyond the traditional Superfund model, to now include a “Bridge to Clara” and “Connected Covenant” solution.
Clara’s efforts to implement its new propositions, combined with renewed investor interest prompted by the Pensions Regulator’s updated Superfund Guidance - which allows profit extraction once funding levels exceed a specified threshold - will intensify the ongoing debate over what the “right schemes” for Superfund transactions are.
In conclusion, 2024 was a busy and exciting year. Now let’s turn to what 2025 might hold for the de-risking markets.
