De-risking report 2025
2024 proved to be another demanding year for the bulk annuity industry, with a record number of schemes expected to have completed a transaction. Whilst insurers have stepped up to meet the increase in demand for transactions in recent years, the pressure is now on the pensions administration industry and the insurers’ back-office functions to progress these schemes to buyout.
There’s no sign of the market slowing down, with a very strong pipeline of schemes looking to transact as we move into 2025, and potential improvements in funding levels meaning the medium to long term pipeline could grow dramatically.
According to the Pension Protection Fund’s The Purple Book 2024, there’s around £1.24[1] trillion of defined benefits liabilities across nearly 5,000 pension schemes in the UK, of which around £1 trillion has not been insured with a bulk annuity policy. 2024 saw a continuation of the debate as to whether to run-on or buyout, but it’s clear that buyout remains the desired end-game for many.
Historically the very largest pension schemes would have viewed their schemes as too large for the insurance industry to accommodate, but the recent pensions headlines that NatWest has secured around a third of its £33bn+ pension scheme across two transactions in 2024, as well as the £6.5bn RSA transaction in 2023, has demonstrated that this is no longer the case, opening up the market for ‘mega deals’.
Whilst it may be the large deals that capture the headlines, in practice the UK pensions market is dominated by smaller pension schemes, many of which are well funded. As shown in figure 1 below, there are nearly 2,000 schemes with fewer than 100 members, of which half are expected to have sufficient assets to be able to afford a bulk annuity transaction, with similar statistics for schemes with 100 to 999 members.
The ability to respond to this demand, particularly for the ‘mega deals’, requires access to large volumes of capital and assets, neither of which have shown signs of limiting the growth in the market in recent years. Many of the insurers started 2024 with very high capital ratios, in part helped by higher yields but also in anticipation of the levels of new business they could achieve in 2024. So capital hasn’t been a constraining factor to date, and with new entrants coming into the market as both insurers and reinsurers, this seems likely to continue. The insurers have also successfully reflected the reduced attractiveness of credit assets over 2024 with changing their investment strategies for new business, allowing attractive pricing to persist throughout the year.
As well as capital and assets, transactions of all sizes require human resources, and this is where signs of stress are showing in the market – at insurers, advisers and administrators. Insurers are also countering this resource pressure in part by hiring in experienced individuals, and where administration is outsourced, maintaining ringfenced teams. But this is partly exacerbating the problem by reducing the pool of experienced resources available to their pension scheme clients.
In 2024 the problem of lack of resource within the pension industry was most acute at administrators, with some schemes struggling to progress data readiness projects alongside the competing pressures from business as usual administration, guaranteed minimum pension (GMP) equalisation, pensions dashboard preparation as well as the competition for resources from the increasing volume of data cleanses and wind-ups already in progress. But the good news for schemes is that these data projects do not all need to be completed before a transaction can take place. Your transaction adviser will be able to explain which data projects to prioritise ahead of a transaction and which will sit comfortably in a post transaction data cleanse, particularly with the insurers open to exploring implementing GMP equalisation, for example.
Once the transaction is completed, getting to buyout will require significant collaboration between the scheme (and particularly their administrator) and insurer, strong project management and robust onboarding plans for administration handover, regardless of the scheme size. Every member of every scheme going through this process deserves to feel confident that their pension will continue to be paid, on time and in full. Maintaining or enhancing the member experience through buy-in to buyout should be a shared goal for the pension risk transfer market, not simply pushing the total volumes ever upwards. Jenny Neale and Sarah Collison provide further insight into insurer administration standards n their article later in this report.
As Rhys Mellens highlighted in his article reviewing 2024, the market is responding to the increase in demand from smaller schemes. This includes standardising processes for pricing, transaction and onboarding administration services to enable an increasing volume of smaller transactions. Some insurers have taken this streamlining further, requiring schemes to provide data and benefits in the insurer’s own templates to allow them to price and transact more transactions efficiently.
In addition, capacity is set to increase as new entrants such as Royal London and Utmost establish themselves in the market, and established insurers traditionally focused on larger transactions are increasingly exploring smaller deals.
As well as the NatWest ‘mega deals’, one widely discussed feature of the market in 2024 was the large number of £1bn+ transactions. The high level of activity in this segment of the market has seen a wider range of insurers being successful, with Aviva and Just both securing their largest external transactions to date, alongside Legal & General, PIC, Rothesay and Standard Life who continue to successfully compete in the £1bn + transaction space.
The large transactions are typically the most bespoke and require most effort to complete – including extensive legal negotiations and highly tailored asset transition plans. Even still, for the insurers the ratio of human resources effort to potential return still favours these larger deals over more modest transactions.
The increased number of insurers provided additional capacity at a time when the market was particularly busy with similar size transactions, as well as providing more choice to the schemes looking to secure these transactions. So a win-win for schemes and insurers.
In summary, developments in the market are allowing schemes of all sizes to achieve buy-ins in record numbers and we expect this to continue in the near term, as insurers streamline their processes and new insurers enter the market. In the coming years, the challenge for the market will be moving these schemes to buyout. This will require investment by the pension industry as well as the insurers, increasing the amount of dedicated and experienced resource at the administrators for this post buy-in work, outside business as usual teams. We look forward to seeing how the market responds.
