The UK pension risk transfer market reached £44.7bn across buy-ins, buyouts and longevity swaps after a "strong finish" to 2022, analysis from LCP has revealed, with continued demand expected to prompt record-breaking volumes over 2023-2025.

The total market volume compared to £43.9bn in 2021 and marks the third highest year on record, as increases in gilt yields over 2022, coupled with improved insurer pricing, led to an acceleration in market activity.

In particular, the analysis showed that, for or buy-ins and buyouts in isolation, volumes reached £28.1bn in 2022, up from £27.7bn in 2021, with £16.1bn of transactions completing in the second half of the year, compared to £19.9bn in H2 2021.

In addition to this, six longevity swaps were announced by UK schemes in 2022 totalling £16.5bn, up from five longevity swaps totalling £15.3bn in 2021.

This was despite higher gilt yields causing a dampening effect on volumes, as increases in gilt yields over 2022, coupled with improved insurer pricing, saw buyout funding levels improve for many UK schemes, with LCP estimating that nearly 1 in 5 were fully funded on buyout.

However, LCP noted that another consequence of improved funding was that pensioner-only buy-ins, comprised only a quarter of volumes in 2022, down from around 70 per cent five years ago, with full scheme transactions also expected to dominate in 2023.

LCP also found that the strong focus on improved buyout funding levels meant that alternative de-risking solutions had a relatively muted year, with Legal and General (L&G) completing three Assured Payment Policy (APP) transactions, while there were no defined benefit (DB) superfund transfers.

More broadly, the analysis revealed that, for the first time, six insurers secured a 10 per cent plus market share, up from five in 2021, four in 2020 and three in 2019.

The six were L&G, Standard Life, Aviva, Pension Insurance Corporation (PIC), Rothesay and Just, together writing 96 per cent of 2022 buy-in/out volumes.

L&G wrote the highest volume with £7.2bn, representing 26 per cent market share, including the two largest deals of the year - two buy-ins totalling £4.3bn with the British Steel Pension Scheme.

Commenting on the findings, LCP partner, Charlie Finch, stated: “2022 was a strong year for UK pension risk transfer with the third highest volumes on record despite higher gilt yields and the market volatility following the liability-driven investment (LDI) crisis.

“We are currently seeing a surge in demand for buy-ins/outs following dramatic improvements in buyout funding levels last year and we expect this to drive record-breaking volumes over 2023-2025.

“We anticipate growth in larger £1bn plus buy-ins this year as larger schemes assess buy-in options following the RSA schemes’ record-breaking £6.5bn buy-in with PIC last month for which LCP was delighted to act as lead transaction adviser to RSA and its parent, Intact.

“In response to these shifts in market dynamics, we have been innovating how we prepare and take schemes to market, and were proud to develop solutions that allowed transactions to proceed in challenging conditions following the LDI crisis.

"Innovation will be key as the market adapts to higher activity and volume levels, whilst ensuring it can continue to serve schemes of all types and sizes.”

Adding to this, LCP principal, Ruth Ward, argued that it is also "welcome news" that all market participants now are able to transact non-pensioner members, aligning with the continuing shift from pensioner-only to full scheme transactions.

“This provides a competitive backdrop as we enter a new busier phase for the market that will test operational capacity at insurers and make it harder to secure quotation capacity from them, with some insurers declining two out of three deals," she stated.

"To thrive in this environment, more than ever schemes must undertake focussed preparation guided by an experienced de-risking adviser if they want to beat the insurer triage and secure competitive buy-in/out quotations.”

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