On the go: Defined benefit schemes are expected to complete buy-in and buyout deals in 2020 to the tune of £25bn, according to research from Lane Clark & Peacock.
If confirmed, this volume will represent the second largest total on record, after £43.8bn of pension bulk annuity transactions in 2019.
LCP’s analysis for 2020 volumes is based on views from clients and insurers, pricing in the market and expectations of deals in the pipeline in the second half of the year, it stated.
According to the consultancy, pricing from insurers improved over March and early April relative to the value of gilts, reflecting the falling price of high-quality corporate bonds in which insurers invest.
Insurers have been able to pass on some of the lower cost of investments to pension schemes through lower buy-in/buyout pricing, with the remaining cost benefit used to maintain robust financial reserves, it noted.
According to Charlie Finch, partner at LCP, trustees in buy-in processes have responded to Covid-19 in three main ways: “With a focus on balancing pricing, carrying out suitable due diligence and checking a transaction fits with any wider scheme constraints.”
“The most common approach has been a ‘proceed with caution’ strategy, with trustees making sure that any pre-transaction due diligence covers the resilience of the insurers’ financial strength and day-to-day operations.
“A second group of trustees have accelerated processes to take advantage of pricing opportunities – some have been very attractive – and a third, smaller group has put transactions on hold, for example if their wider scheme’s funding level has fallen materially as a result of market volatility.”
