The pension scheme buy-in market is forecast to record a paradigm shift in 2023 amid a wave of new business volumes, new research by Hymans Robertson has indicated.

According to the pensions and financial services consultancy, market activity will also climb towards record highs over the next few years.

A new report published by Hymans Robertson is predicting a significant increase in demand, leading to record buy-out volumes exceeding £50bn, and the potential to hit £70bn over the next few years. The record year currently is £44bn, achieved in 2019.

The material increase in long-term interest rates over the last year means that many pension schemes have seen significant improvements in their funding levels. The report’s findings highlighted that on average, pension schemes are now only roughly five years away from being able to afford to fully insure.

Many pension schemes have already reached the position where they can fully insure, Hymans Robertson’s analysis revealed, and are therefore moving quickly to complete buy-outs to lock down risk for their members. Popularity for buy-ins was already increasing, but this shift in market conditions has led to pension scheme demand soaring to its highest ever level.

“The buy-in market is close to entering its eighteenth year and its certainly now in a whole new phase of adulthood,” said partner and head of risk transfer at Hymans Robertson, James Mullins. “The recent increase in demand from pension schemes to fully insure their members’ benefits has been incredible.

“As a result, we expect that by 2030, half of all of the UK’s private sector defined benefit (DB) pension scheme liabilities will have been insured, covering five million members’ benefits and close to £1trn of liabilities.”

Mullins also said that pension schemes need to be “smarter than ever” in the way they approach the market for buy-in quotations, and suggested that upfront shortlisting of insurers can be a “powerful strategy” in the new market phase.

“For some smaller pension schemes, exclusive partnerships will deliver the best results,” he added.

“Pension scheme members in the UK will see a material shift over the next 10 years. Up until now, their pensions have been managed and paid by a group of trustees, linked to their previous employer. However, going forwards, their pensions will be increasingly managed and paid by insurance companies.

“Removing the link between their pension and previous employer will feel like a significant change to many members, so it needs careful communication to set out the benefits. We expect over five million pension scheme members to be transitioned to the UK insurance regime over the next 10 years, with oversight from the Prudential Regulations Authority and the Financial Conduct Authority.”

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