Despite the defined benefit (DB) pension risk transfer market being a “little quieter” so far this year, Standard Life has said that there is a "strong pipeline" ahead, with over £40bn of bulk purchase annuities (BPA) expected to transact by the end of the year.

Standard Life managing director of DB solutions and reinsurance, Kunal Sood, explained that, in light of strong funding levels and attractive insurance pricing, DB pension schemes are increasingly looking for ways to de-risk their liabilities and secure their members’ benefits, with BPA remaining the chosen method for many schemes.

Larger transactions in particular are expected to be increasingly commonplace, as Sood noted that, since 2021, the market has seen a steady increase in the number of billion-pound transactions, with publicly announced transactions of this size increasing from six in 2021 to nine in 2023.

He also suggested that this trend is set to continue, predicting that over £1bn transactions will dominate the market volumes in 2024, topping the number completed in 2023.

"All signs point to this year being another very busy year for the DB de-risking market, with many trustees and sponsors continuing to use insurance to secure member benefits," he stated.

"Against this backdrop, diligent preparation and early insurer engagement remain vital components in order to successfully navigate this busy market."

However, Sood clarified that, despite the high levels of activity being seen in the market, insurers are continuing to build their teams and invest in technology to improve efficiency and meet the growing demand from pension schemes, including building further efficiencies in the pricing process through to the transition from buy-in to buyout.

In addition to this, he pointed out that insurers have continued to look for solutions to scheme-specific requirements, whether this is by supporting schemes’ liquidity needs, helping members retain links to defined contribution arrangements, or providing cover for data and benefit risk.

Despite this, he acknowledged that illiquid assets continue to represent a significant consideration for many schemes looking to de-risk, warning that, many schemes that have enjoyed significant improvements to their funding levels in recent years still have illiquid assets that wouldn’t be traditionally suitable for meeting a BPA premium.

“Indeed, our research echoes this, with employee benefit consultants (EBC) and professional trustee firms saying they found dealing with illiquid asset holdings in the context of a bulk annuity transaction challenging,” he said.

“Half of the employee benefit consultancies and professional trustee firms we surveyed said their clients believe deferred premiums are the only viable insurer-side solution to help deal with illiquids.

“All firms noted that some clients believe holding illiquid assets will prevent them from conducting a buy-in deal.”

However, Sood explained that while schemes’ illiquid assets are not usually a natural fit for insurer balance sheets, there are a range of potential solutions to fit most circumstances.

He noted that it is important for these schemes to engage with an insurer as early as possible to identify possible options that will enable a scheme to take the next step towards endgame, while exploring scheme-side solutions which can be the most efficient outcome where schemes do not have a burning platform for a transaction to happen quickly.

Market activity and DB funding improvements are not the only consideration for DB trustees though, as Sood pointed out that the second half of the year also brings a change in government, as well as the launch of a “landmark” pensions review and a Pension Schemes Bill.

"There will be a continuing reform agenda when it comes to the pensions system, with a raft of legislative signposting and regulatory guidance released, including incremental developments to the regulatory infrastructure of superfunds," he stated.

“Solvency UK reforms are playing through, with the previous parliament already legislating to increase flexibility regarding which assets qualify for Matching Adjustment (MA).

“In order to keep this momentum going we have proposed the introduction of an MA sandbox to bring efficiency in exploring the use of a wider universe of assets that are fundamentally suitable for backing annuities and would support the UK economy.”

In the meantime, he suggested that trustees and sponsors should take comfort in the Prudential Regulation Authority's (PRA) continued monitoring and management of potential emerging risks, "which is one of the key pillars underpinning the security of BPAs".

“While all of these developments are being factored into decision making for trustees and sponsors, we have not yet experienced any impact on appetite for insurance de-risking solutions, as schemes look to capture the opportunity to secure their members’ liabilities with tried and tested solutions," he added.

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