The coming year could be the first year that sees more than £15bn of annuities written from final salary schemes, Aon Hewitt has suggested.

According to the Aon Hewitt UK Risk Settlement Bulletin for October 2017, access to competitive asset opportunities will lead the extent to which the market can maintain current pricing at larger volumes. With this, it is likely that 2018 could see record numbers of annuities written from final salary pension schemes, Aon noted.

As current annuity pricing continues to attract new schemes to new annuity solutions, insurers across the market have said that the final quarter of 2017 is now “the busiest ever” in terms of cases and pressure on manpower.

Due to increased demand catching up with supply, Aon said, insurers are becoming more selective over auctions and are opting for projects that are clear over decision-making.

The report stated: “If this continues the market may struggle to maintain the recent levels of high yield passed on to schemes. This does not mean the current annuity price opportunity is lost for schemes not in the market – but it is important to plan the auction carefully.”

In terms of interest rate rises developing, the report adds that although it may be beneficial for those reliant on falling liability values to plug funding deficits, well-hedged schemes will “experience limited benefit” from the growing rates.

While gilt yield increases could make the yield from annuities look less attractive when compared to other asset classes, consumers should be mindful of the permanent risk reduction benefits of annuities, Aon added.

“The simple approach we recommend, as ever, is to be prepared and ready for when the time is right for you. We would expect most schemes to have scope to benefit from de-risking using annuities at their current price. However, we continue to see a wide variation in how annuities are captured in asset strategy planning and preparatory work, meaning many schemes are not alive to current opportunities,” Aon concluded.

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