The UK defined benefit (DB) pensions de-risking market is likely to see £50bn in bulk annuity transactions and £20bn in longevity swaps in 2025, according to analysis from WTW.

WTW’s annual Pensions De-risking report predicted that, after 2024 seeing just under £60bn in transactions completed, buoyant scheme funding positions and new insurer participants in the market means more schemes would have the opportunity to transfer liabilities in 2025.

WTW said that while a number of well-funded schemes may intend to run-on for longer to take advantage of improved access to surplus, many of those schemes would use longevity swaps as part of the process of managing their risk.

WTW pension transaction team managing director, Shelly Beard, said: “The relatively stable market conditions over 2024 combined with the rise in gilt yields over recent weeks has meant schemes’ funding levels have generally continued to improve.

“Further, more trustees and corporates have been actively focusing on dealing with their illiquid assets, drafting benefit specifications and cleaning up their data. Alongside this, insurer pricing has remained attractive for schemes of all sizes.”

She explained that all of this is resulting in more schemes being ready to approach the insurance market to undertake full scheme buy-ins, with the increase in demand expected to be met in part by the increase in participants in the market.

In addition to this, Beard also stated that “strong” levels of longevity swap activity were expected to continue.

“The proposed Mansion House reforms have led to a number of pension schemes with strong sponsors taking a fresh look at their long long-term target and deciding that running on for longer may be the preferred way forward, with a longevity swap used as a means of mitigating a key remaining unrewarded risk,” she continued.

The firm predicted several other developments in the UK pension de-risking market in 2025, including a focus on the buy-in to buyout phase, continued development and innovation for smaller schemes, more transactions outside of the traditional buy-in arena and regulation continuing to influence and shape the market.

It said that with a large number of schemes having transacted full scheme buy-ins over the last few years, there is an increasing focus from insurers, trustees and advisers on the ability of the insurance industry and administration providers to convert those buy-in policies to full buyouts.

WTW added that this pressure on insurer resources could create an opportunity for smaller schemes with buyout-ready data to “fast-track” the buy-in to buyout process.

Additionally, the report acknowledged there are already some well-established insurers in the small scheme space, deals less than £100m in size, with four having processes involving fixed templates for benefits and data and pre-defined contracts ensure the process as efficient as possible for the insurer to price and onboard.

The firm noted that with two new entrant insurers in 2024, as well as a third new entrant expected in quarter one of 2025, all concentrating on the smaller end of the market, there is likely to be increased innovation and more choice and opportunities for smaller schemes.

WTW also predicted that there would be more transactions outside of the traditional buy-in arena, pointing out that far Clara Pensions has completed three deals, all based on its traditional superfund model.

It suggested that the expanded offerings from Clara Pensions also had the potential to attract more schemes and companies considering the superfund approach for securing their liabilities.

In addition to expanded offerings for schemes, WTW also predicted that regulation would continue to influence and shape the market.

In particular, it highlighted that with the final Solvency UK measures come into effect at the end of 2024, this year would see greater clarity on the impact of these reforms on the bulk annuity and longevity swap markets, specifically if any of these reforms have led to a change in pricing or policyholder security.

WTW also said 2024 saw increased scrutiny from the Prudential Regulation Authority (PRA) on the bulk annuity market due to the growth of the market and the size of some of the deals.

As the PRA aims to be a proactive regulator, WTW predict that this scrutiny would continue over 2025, especially as the market continues to grow and transact large volumes.

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