On the go: The UK pension risk settlement market is anticipated to see volumes of more than £45bn by the end of 2021, the third year in a row that it has reached this level, according to analysis by Aon.
This is despite a subdued first half of the year, with only £7.7bn of bulk annuity deals completed during the period.
However, the pace then accelerated in the following six months, with Aon expecting that there will be close to £30bn of bulk annuity deals completed by the end of 2021.
Karen Gainsford, associate partner at Aon, said: “The pattern of bulk annuity deals has been unusual in 2021, no doubt as a result of wider market conditions. Even so, we think it’s likely that deal volumes from July to December will amount to over £20bn.”
This figure would make it the second-busiest six-month period after the £26.3bn recorded in the second half of 2019, with almost half of this figure being covered by just three schemes — Telent (£4.7bn), National Grid (£4.4bn over two deals), and Asda (£3.8bn).
Gainsford continued: “It’s clear that the market is adapting to circumstances. This increase in the second half of the year was driven by trustees and corporates refocusing following a hiatus driven by the volatility of the pandemic, but also influenced by improved pricing from insurers and better funding and affordability positions.
“While there was increased capacity, schemes that were looking to transact in the second half really needed to stand out to capture the best possible pricing, as there was significant competition for the attention of insurers. We have no reason to doubt that much the same situation will continue into the first quarter of next year.”
Aon’s most recent ‘Global pension risk survey’ revealed for the first time that more schemes than ever are targeting buyout as their long-term objective, rather than self-sufficiency.
On longevity swaps, Tom Scott, associate partner at the consultancy, noted that as in previous years, the market continues to be dominated by a relatively small number of “mega deals”.
“This means that between the announcement of these transactions, it may appear that the market has ‘gone quiet’,” he said.
“The reality could not be further from that — there is currently significant behind-the-scenes activity ahead of the completion of the next wave of transactions.”
Mike Edwards, partner at Aon, said: “Schemes now understand the need to work with an experienced adviser that can navigate the challenges of the market, so they can be better informed and better advised.
“That’s particularly so in periods of heightened activity, where there are attractive pricing opportunities alongside an equal need to be nimble to capture them and to manage execution risks.
“As an example — and this is unprecedented — we have recently seen schemes having to compete with each other to book available trade dates with fund managers in order to transition assets before year-end. That really does reflect how busy the market continues to be and we fully expect it to remain like this into 2022,” he added.
