Four fifths of defined benefit scheme trustees expect BPA deal within five years

The increased appetite for deals follows a year of improved scheme funding levels, driven by higher interest rates, according to Standard Life.

The insurer said research carried out among 50 pension trustees managing DB schemes with assets over £100m found 50 per cent anticipated their scheme would approach an insurer about a buy-in or buyout in the next one to five years. Over a third anticipated approaching an insurer even sooner, within the next year. 

This high demand for de-risking activity comes as more than 92 per cent of trustees reported that the economic environment over the last year has improved their scheme funding level, with DB schemes having benefitted from factors including a rise in gilt yields, high inflation rates, and slowing longevity improvements. 

Scheme preparation

Kunal Sood, managing director of defined benefit solutions and reinsurance, at Standard Life, said: “Bulk purchase annuity (BPA) deals have long been considered the gold standard when it comes to de-risking, but sufficient funding is a key factor and for many pension schemes, a BPA deal was not in their short-term horizon, even just a year ago.

"However, driven in part by the increase in gilt yields and inflation rates, scheme funding levels have improved to the point where BPA deals are now a near-term solution for many DB schemes, as our research shows. This new funding environment has helped drive demand across the market, which is on track to meet expectations that 2023 will be a record-breaking year in terms of BPA deal volumes.”

“Trustees have many factors to consider when it comes to their de-risking strategy, however, with many schemes in a strong funding position, it is unlikely the current appetite for buy-ins and buyout will slow down. This means it is crucial that schemes prioritise preparation and ensure they have clarity on their requirements and objectives, so that they are well prepared to maximise insurer engagement."