UK buy-in demand set to quadruple over the next 15 years

Demand for bulk annuity buy-ins is set to skyrocket over the next 15 years and an estimated £700 billion of defined benefit pension scheme liabilities could have been passed to insurance companies by 2032, a report published today by Hymans Robertson reveals. UK companies are increasingly looking to offload risk from their defined benefit (DB) pension scheme according to the analysis from the leading pension consultancy.

Hymans Robertson’s annual Risk Transfer Report reveals a growing demand from defined benefit pension schemes to complete buy-ins and buy-outs, with around a third of schemes expected to reach self-sufficiency over the next 15 years. This would imply around £50 billion a year of buy-ins and buy-outs by 2032, compared to current transaction volumes of between £10 billion and £15 billion a year.

James Mullins, Head of risk transfer buy-out solutions at Hymans Robertson responds to this growing demand:

“It is not surprising that more DB schemes are looking to offload risk in the wake of all the challenges surrounding their long-term affordability and sustainability. If demand for buy-ins quadruples, as we predict, this is a phenomenal increase. Pension schemes should be proactive and gradually chip away at the problem through a series of well-timed buy-ins, to take advantage of the high insurer appetite and optimal pricing we’re seeing in the market today.”

James makes some observations on the year so far:   

“We have already seen close to £5 billion worth of buy-in and buy-out transactions in the first half of 2017 and we’re expecting transaction values to exceed £10 billion for the third year in a row so, all the signs are pointing towards 2017 being another high-volume year. Despite this, some insurers have completed less bulk annuity business than they had targeted in the first half of 2017, which only serves to increase their appetite to transact over the remainder of the year.”

James on the need for schemes need to be proactive in the market:

“A number of insurers haven’t met their bulk annuity targets for the first half of 2017 and so the willingness to complete buy-ins and buy-outs with pension schemes is currently high. This will not always be the case. As more and more schemes consider insuring their risk, insurers will be increasingly less able to keep up with demand. When this happens they will be more likely to give priority for their best pricing to pension schemes that have already completed a buy-in.  This is because those pension schemes have demonstrated they have the knowledge, experience, governance and general readiness to carry out these transactions. So pension schemes who take proactive steps to chip away at the problem by capturing opportunities to complete a series of buy-ins will be in a strong position in years to come.”