A fourfold increase in the number of defined benefit bulk buy outs is expected over the next decade, according to latest industry figures.
Mercer points out that by the end of this year, the total UK risk transfer market (which includes longevity swaps) is expected be worth around £50bn, double that of 2018.
Within this it says the bulk annuity market is worth around £40bn. These figures do not include individual DB to DC transfers, which account for a further £20bn.
Mercer says growth in this market will be driven by lower pricing, as more DB scheme mature, and additional reinsurers looking to enter the UK market.
Mercer partner David Ellis says: “The next few years are looking bright for those schemes wishing to insure their members’ retirement income.
“As the UK’s defined benefit schemes mature, the length of insurance contracts reduce, making them more predictable and cheaper to buy. Despite the increased demand, there is still capacity in the market for well-prepared schemes.”
Ellis adds: “Schemes that want to take risk off the table need to do their homework before they approach insurers. Key steps include understanding the range of options available and choosing the best approach for the scheme, putting the right governance and decision-making structures in place and getting data and benefit information ready for transaction.”
In a year of record-sized transactions, including around a dozen over £1bn (including a £7bn longevity swap), Mercer has also seen significant activity at the smaller end of the scale. Alongside their work on larger transactions, the firm has led on dozens of transactions under £50m in liabilities.
Mercer principal Ruth Ward says this has been aided by the company’s acquisition of JLT earlier this year.
“We can now bring our risk transfer expertise to hundreds more DB pension schemes. Smaller schemes are certainly having to work hard to gain traction with insurers, but there are great opportunities for those who are well-prepared.”