Bulk annuity volumes on track to total £30bn in 2021

Bulk annuity market volumes for 2021 are expected to total around £30bn, despite a slower than anticipated start to the year, according to analysis from Barnett Waddingham.

The research found that whilst the first half of 2021 saw only £7.7bn worth of buy-ins and buyouts completed, the latter half of the year has proven much busier.

The consultancy suggested that this may be due to a number of insurers not reaching their goals from the beginning of the year, in turn increasing appetite around the year end and heading into the beginning of 2022.

Whilst the busier second half of the year is unlikely to push the total market volume past the record heights of 2019, the year total is expected to come close to, or exceed, £30bn, which is in line with 2020 volumes, the second busiest year on record.

The report also found that whilst pensioner buy-in pricing has returned to more typical pre-pandemic margins above gilts, following the spike in credit spreads in spring 2020, it continues to remain at an attractive level for schemes looking to de-risk.

In addition to this, the report suggested that a “significant” proportion of schemes are expected to reach buyout funding over the next 10 years, with a potentially marked increase in market demand expected.

In light of this, the Barnett Waddingham suggested that trustees and sponsors put themselves into a stronger position to transact and ensure that the bulk annuity contract delivers against its objectives by looking further ahead to the ultimate endgame of pension scheme wind-up.

Commenting on the findings, Barnett Waddingham partner and head of bulk annuity consulting, Gavin Markham, said: “The pipeline of business for 2022 from schemes seeking to insure their liabilities already looks very healthy. Both the supply and demand sides of the market are likely to support a very busy marketplace going into the New Year.

“Although the economic outlook may, at first glance, appear more positive than at the beginning of 2021 the industry needs to remain vigilant.

"Uncertainty still remains around the future progression of Covid-19, continuing implications of the UK’s exit from the EU, as well as global macro challenges – all of which give the possibility for headwinds for pension schemes and the bulk annuity market.

“As we look at the medium to longer term, the high level of demand from pension schemes is only set to continue as they head towards their ultimate goal.

"Future demand will inevitably come from a significantly greater number of schemes in a position to fully secure their liabilities via buyout, as well as partial buy-ins for those schemes navigating the overall de-risking journey and strategy for delivering the endgame."

Markham also clarified, however, that there is no ‘one-size-fits-all’ approach as every scheme will have its own path to follow, and each will have to consider numerous possibilities, potential storms or opportunities along the way.

"In order to achieve the best transaction outcome in what is set to be an increasingly busy market in the years to come, schemes must be well-prepared," he continued.

"Transaction readiness and a thorough understanding of market dynamics are key to maximising insurer appetite.”

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