Annual buy-in and buyout volumes by UK defined benefit pension schemes will hit £25bn in 2020, LCP has predicted.

This would make 2020 the second busiest year on record for the transactions, exceeding the £24.2bn reached in 2018 but falling short of the record £43.8bn worth of bulk annuity deals completed in 2019.

The company pointed out that pricing had improved over March and April relative to the value of gilts, reflecting falling prices of high-quality corporate bonds that insurers invest in.

This has allowed insurers to pass some savings on to pension schemes, while the remaining savings are being used to bolster financial reserves.

LCP’s analysis said it was too early to draw firm conclusions on the impact that a higher mortality rate might have on insurer pricing and scheme finances, though current projections in the UK suggested the impact would not be significant and will be overshadowed by swings in the financial markets.

The firm’s analysis was based off of views from clients and insurers, pricing in the market and expectations of pipeline in the second half of the year.

LCP partner, Charlie Finch, said: “Trustees in buy-in processes have responded to COVID-19 in three main ways, with a focus on balancing pricing, carrying out suitable due diligence and checking a transaction fits with any wider scheme constraints.”

Finch stated that the most common approach has been for trustees to ensure “that any pre-transaction due diligence covers the resilience of the insurers’ financial strength and day-to-day operations”, while some trustees have accelerated processes “to take advantage of pricing opportunities” and a smaller group have put transactions on hold.

“Putting all of this together, we forecast that £25bn is a realistic central estimate for 2020 volumes. Clearly there are uncertainties that remain as to how the year plays through but we are continuing to see a buoyant level of activity,” concluded Finch.

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