There has been a surge in demand for full scheme buy-outs from DB schemes, according to the latest data from Aon.
Its latest UK Risk Settlement Bulletin says that bulk annuity insurers are reporting their strongest pipeline of annuity auctions for some years.
This demand is being driven by a number of factors, including improved funding levels for many schemes. This has lead to an opportunity to secure full scheme benefits with little or no financial support from sponsors.
At the same time economic conditions, including rising interest rates, have led to more attractive annuity pricing, with more insurers competing for full scheme buyout transactions in particular.
This sector is also being buoyed by lower pension liabilities, which has been helped by a rise in yields over 2022. Aon points out that this further reduces the monetary size of these shortfalls.
Looking at this market over the first six months of 2022, Aon says insures like a ‘steady flow’ of business, which they are more likely to get through competing in auction processes across a range of sizes. Focusing on larger buy-out transaction can lead to a ‘lumpier’ flow of business, or none in some periods for particular insurers, given there are relatively few of these transaction in the market.
It points out that this has been a real positive for schemes looking to secure ‘smaller’ buy-outs —typically of £100m or less — as more insurers have been competing at this level, which can lead to better outcomes for schemes looking to de-risk.
In total Aon has completed transaction of below £100m with five different insurers over the first half of this year.
Despite this demand Aon is not predicting that total transactions in the bulk annuity market for 2022 will top the record of £44bn that was transacted in 2019. It says levels of around £35bn will be a “more realistic target”.
It adds: “For some sponsors the fall in pension liabilities in pound terms may bring the buyout deficit within cheque-writing distance. this may mean that many schemes are now closer to their end-game.”
