Bulk annuities transactions break records once more

Bulk annuities transactions break records once more

Record volumes of bulk annuity transactions were completed in the first half of 2018, with £7.8bn completed, figures from consultancy Lane Clark & Peacock (LCP) have found.

These figures surpassed the previous £6.9bn half-year record set in 2014, the year before pension freedoms came into force.

The data, calculated by LCP, also found the total longevity risk transfer also beat previous records, with £21.8bn for the first half of the year, exceeding the previous record of £11.9bn in the first half of 2014.

Buy outs allow a pension scheme to pay an insurer to take on responsibility for meeting the liabilities and paying the pensions of scheme members. Buy-ins are an arrangement where the insurer agrees a guarantee to make payments to the scheme.

Longevity swaps are where schemes ask a bank or an insurer to take on the risk of members living longer than expected.

Charlie Finch, a partner at LCP, explained that buy-ins and buy-outs are now an established risk management tool for large blue-chip companies who are seeking to manage their liabilities.

“Combined with arguably the best insurer pricing in 10 years, 2018 has got off to a flying start, breaking all previous records for half year volumes,” he said.

“The pension plans of Heathrow airport, Littlewoods, Marks & Spencer and Siemens have all completed large pensioner buy-ins in 2018; Toshiba and PA Consulting have both insured UK pension plans in full.”

Buy in/buy out volumes in the UK by insurer

 InsurerH1 2018 (£m)H1 2018 (share)H1 2017 (£m)Total 2017 (£m)Total 2017 (rank)
1PIC3,25742%1,8753,65430% (1) 
2Aviva1,53920%3262,04517% (3)
3Scottish Widows1,10514%4056455% (6)
4Just7189%2959988% (4)
5Legal & General5077%1,5043,40528% (2)
6Phoenix Life4706%000% (8)
7Rothesay Life1702%4059608% (5)
8Canada Life00%2765444% (7)

Shelly Beard, a senior director at rival consultancy Willis Towers Watson, added: “I expect this high level of activity to continue through the second half of the year.

“How long this level of activity will be sustained is more questionable. The kind of ‘end of year sale’ seen in previous years is unlikely to materialise this year, because insurers will already have met their annual new business targets.”

Dean Wetton, founder of London-based pensions advisers, Dean Wetton Advisory, said: “There are plenty of defined benefit (DB) plans out there that need to derisk. It depends on the sponsor’s appetite and willingness to take risk.”

Mr Wetton said that attractive pricing has made many sponsors carefully consider the benefits of buy-outs and buy-ins.

He added: “A lot of this stuff has been done to shape the residual, to get rid of a cohort that makes the rest of the scheme easier to manage. With many DB plans still out there that need to derisk, there is still heaps to do.”