LONDON, 14 October 2020 – Pensions de-risking transactions are one of the top three priorities for trustees and corporate sponsors in the next three years, according to research1 by Willis Towers Watson.
The research shows that 40% of pensions schemes are expecting to complete a de-risking transaction within the next three years – with a third (33%) anticipating a bulk annuity and one-in-10 (11%) expecting a longevity swap. This compares to 28% that said they had already completed a bulk annuity and just 5% that had finalised a longevity swap so far.
The issue is also set to become increasingly important – whilst over the next 12 months, it ranks seventh in the list of priorities, looking over a 3-year time horizon it moves up to third priority.
“More schemes are emerging from the short term focus necessitated by the early stages of the pandemic, to focus on longer term future planning and risk management.”
Shelly Beard,
Senior Director
Shelly Beard, Senior Director in Willis Towers Watson’s Pensions Transactions team, said: “This research backs up our own experience that shows more and more schemes approaching the risk transfer market. Pricing remains attractive and more schemes are emerging from the short term focus necessitated by the early stages of the pandemic, to focus on longer term future planning and risk management.
“Our survey data also shows that the proportion of schemes whose endgame is buyout is up modestly compared to last year, with a corresponding decline in those planning to run-off, perhaps reflecting the fact that the unprecedented events of 2020 have caused some to reconsider their view of run-off risk.”
“2020 has been a very busy year in the de-risking markets – with more than £50bn of liabilities expected to be transferred to the insurance market through longevity swaps or bulk annuities. If 40% of all pension schemes choose to undertake a transaction over the next three years as our survey suggests, that could equate to schemes with more than £600bn of assets. Even if most will only transact on a portion of their liabilities, this still indicates an incredibly busy marketplace and compares to around £300 billion of liabilities transferred over the entire history of the bulk annuity and longevity swap markets so far.”
Further polling2 from Willis Towers Watson’s virtual Pensions Conference in late September shows that nearly three-quarters (71%) of Trustees and Pensions Directors believe that the introduction of superfunds is a positive development for scheme members, an increase from under two-thirds (62%) in in the same poll conducted in June this year.
Correspondingly, one-in-five (20%) schemes have already held discussions to decide whether superfunds would be a potential option for their own scheme, nearly doubling from the 11% that had done so in June this year.
Beard said: “There’s clear interest in superfunds from a significant minority of schemes, even in these early days. Those with a weak or uncertain covenant who can’t afford a buyout may well be tempted as this new area of the market becomes an option. It’s interesting to see how even since June, when the Regulator’s guidance on superfunds was first published, attitudes have become increasingly positive to this new market development.”
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.
1 Willis Towers Watson conducted a survey of over 129 trustees, pension managers and other key stakeholders on the key issues facing DB pension schemes in the summer of 2020.
2 In a separate survey, Willis Towers Watson polled over 200 attendees of its virtual Client Conference which took place between 22nd September and 1st October 2020. Attendees were pension scheme trustees, chief investment officers and pension directors.
