Half of UK’s DB liabilities to be insured within a decade

Around £333bn of liabilities have already been insured, according to Hymans Robertson’s latest report into bulk annuities, which showed that half of these transactions were conducted in the past three years.

The consultancy’s research pointed out that the drive towards risk transfer for DB schemes has been gaining momentum for a few years, driven by a combination of factors such as affordability, a reality check on sponsor strength, and objective setting by trustees. 

According to its trustee survey, Hymans Robertson estimates that half of all the UK’s £2tn DB liabilities will be insured within 10 years. The report stated that while the insurance market “has not shown signs of creaking yet, surging demand will mean more schemes vying for insurers’ attention”.

“Being well prepared, with a clear process and an up-to-date understanding of the market will be needed to get the best out of an increasingly busy market,” it added.

In 2021, the volume of risk transfers fell slightly, with an estimated £45bn worth of deals taking place last year, down from £55.4bn in 2020. Volumes of buy-ins and buyouts held at £30bn, slightly down from £31.3bn in 2020.

As tends to be the case, these volumes were dominated by a handful of very large deals. Highlights among these transactions were the Metal Box Pension Scheme’s £2.2bn buyout with the Pension Insurance Corporation, and the Imperial Tobacco Pension Fund’s £1.8bn buy-in with Standard Life, which is part of Phoenix Group.

Insuring £1tn of UK liabilities would cover the benefits of 5mn members. James Mullins, partner and head of risk transfer at Hymans Robertson, said that members are set to experience a marked shift in the way their pensions are handled over the next 10 years.

“Going forwards, their pensions will be increasingly managed, and paid, by insurance companies,” he said. 

“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.”

Hymans Robertson’s prediction of a rush to bulk annuity deals is, however, set against a study published on February 16 that uncovered a rising interest in alternatives to buyouts among pension trustees.

Research from the Pensions Management Institute and Schroders Solution revealed that two-thirds of trustees are exploring options other than buyouts as part of their schemes’ long-term funding goals, despite the rising affordability of these deals.