Half of all UK’s £2 trillion DB pension liabilities will be insured within 10 years

• £1/3 trillion of pension scheme liabilities has already been insured, covering 1.4 million members’ benefits.

• Half of that insurance (over £150bn) has been put in place in the last three years.

• £1 trillion of pension scheme liabilities will have been insured, covering 5 million members’ benefits.  That’s half of all of the UK’s private sector DB pension scheme liabilities.

Half of all the UK’s £2 trillion private sector Defined Benefit (DB) pension scheme liabilities are expected to be insured by the end of 2031 according to Hymans Robertson as it issues its annual risk transfer report today.

15 years ago, ongoing DB pension schemes started to use insurance in the form of bulk annuities (“buy-ins” and “buy-outs”) and later longevity swaps to reduce the risk for their members. In those 15 years, this risk transfer market has taken off. The leading pensions and financial services consultancy’s report shows:

• £1/3 trillion of pension scheme liabilities has already been insured, covering 1.4 million members’ benefits.

• Half of that insurance (over £150bn) has been put in place in just the last three years.

Commenting, James Mullins, Partner and Head of Risk Transfer at Hymans says:

“The rapid growth in demand for pension schemes to insure their risks, along with improved pension scheme funding levels, attractive insurer pricing and new alternative risk transfer options, means that we expect that within 10 years those figures will grow materially. To the extent, we believe, that £1 trillion of pension scheme liabilities will have been insured, covering 5 million members’ benefits. That’s half of all of the UK’s private sector DB pension scheme liabilities.

“Pension scheme members in the UK will see a material shift over the next 10 years. Up until now, their pensions have managed, and paid, by a group of trustees, linked to their previous employer. 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 and so needs careful communication to set out the benefits. 5 million, or more, individuals will increasingly look to the UK insurance regime, with oversight from the Prudential Regulations Authority and the FCA, to protect their pensions going forwards.”

A copy of the report can be accessed here.