The UK pension risk settlement market is expected to exceed £45bn by the end of 2021, representing the third year in a row that activity has reached this level, according to analysis from Aon.

The firm explained that whilst the market was “relatively subdued” in the first half of 2021, with £7.7bn of bulk annuity deals completed, the pace has since accelerated.

As a result, Aon predicted that there will be close to £30bn of bulk annuity deals completed by the end of the year, estimating that volumes from July to December will amount to over £20bn, making it the second-busiest six-month period after the £26.3bn recorded in H2 2019.

The provider also suggested that it has been a busy 12 months for the longevity swap market, with disclosed transactions in 2021 expected to surpass £15bn.

Aon associate partner, Tom Scott, noted that, as in previous years, the swap market has continued to be dominated by a relatively small number of ‘mega deals’, explaining that this can make the market appear quite between the announcement of transactions.

"The reality could not be further from that," he clarified, "there is currently significant behind-the-scenes activity ahead of the completion of the next wave of transactions.”

Adding to this, Aon associate partner, Karen Gainsford, argued that it is "clear" that the market is adapting to circumstances.

She continued: "This increase in the second half of the year was driven by trustees and corporates refocusing following a hiatus driven by the volatility of the Covid-19 pandemic, but also influenced by improved pricing from insurers and better funding and affordability position.

“While there was increased capacity, schemes that were looking to transact in H2 really needed to stand out to capture the best possible pricing, as there was significant competition for the attention of insurers.

"We have no reason to doubt that much the same situation will continue into the first quarter of next year.

“With this background, we have been advising schemes on what they can do to make better decisions and to ease the process of reaching their endgame via an insured solution.

"This need has become more pressing as competition for insurers’ attention has increased. Aon’s most recent Global Pension Risk Survey showed for the first time that more schemes than ever are targeting buyout as their long-term objective, rather than self-sufficiency.”

Aon partner, Mike Edwards, also suggested, however, that schemes now understand the need to work with an experienced adviser that can navigate the challenges of the market, so they can be better informed and better advised.

“That’s particularly so in periods of heightened activity where there are attractive pricing opportunities alongside an equal need to be nimble to capture them and to manage execution risks,” he continued.

“As an example - and this is unprecedented - we have recently seen schemes having to compete with each other to book available trade dates with fund managers in order to transition assets before year-end.

"That really does reflect how busy the market continues to be and we fully expect it to remain like this into 2022.”

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