Record-breaking year for bulk annuity market transactions

The bulk annuity market has exceeded £24bn in pension scheme buy-in and buyout transactions in 2018 for the first time in history, new research from Barnett Waddingham has revealed.

The market in 2018 approximately doubled in comparison to recent years, when the annual volumes have been around £10bn - £13bn.

In the record-breaking year, there was a surge in demand from pension schemes to complete de-risking transactions, and it saw a re-emergence of ‘mega’ transactions and full scheme buyouts.

There were four 'mega' transitions in 2018 that were worth over £1bn, while nearly 40 per cent of business was for buyouts, compared to around 20 per cent in recent years.

Barnett Waddingham said that this was a “step-change” in the amount of bulk annuity activity, not a “gradual increase”, with the new heightened level expected to continue.

It also highlighted that 2018 had attractive pricing options for schemes to purchase a bulk annuity, with pensioner buy-in pricing being at historically competitive levels relative to gilts.

Commenting on the findings, Barnett Waddingham partner and head of bulk annuity consulting, Gavin Markham said: “Unprecedented demand to complete de-risking transactions paved the way to a record-breaking year in the bulk annuity market.

“The improvement in pension schemes’ funding positions, as they continue to mature, is a significant factor in the increased level of demand supported by some extremely attractive insurer pricing by historical standards.

“Schemes are typically targeting a low-risk position in their journey planning, with trustees and employers increasingly focussed on end-game planning. Defining the end-game helps provide a robust decision-making framework for a transaction. Liability management exercises can feature in the journey and materially enhance the affordability of a transaction.

“The bulk annuity market continues to evolve and provide opportunities for those with clear objectives and a considered route to transaction. Demand for de-risking through annuities is likely to increase as schemes mature further.

“It is essential for schemes to understand the market dynamics and how insurers operate. Preparing well and demonstrating transaction readiness will be key in gaining insurer appetite and positioning the transaction positively relative to other schemes.”

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