Total pension scheme buy-in and buyout volumes reached £28.6bn in 2021, making it the third busiest year on record, according to Mercer and Aon.

Mercer noted that 2021 saw a record volume of 'core' bulk annuity deals of £1bn or under, 10 per cent higher than any previous year, with 65 per cent of deals below £100m in size.

This was highlighted by its findings that the £28.6bn of deals were across 157 transactions, compared to £31.8bn across 141 deals in 2020 and £43.8bn across 151 transactions in 2019.

The year was characterised by a fairly slow first six months, before activity picked up in the second half of the year.

Mercer and LCP estimated that longevity swap deals totalled £15.3bn during the year, while Aon estimated the volume at £15.2bn.

Both figures would make 2021 the third busiest year on record for longevity swaps.

Aon noted that four insurers wrote their record volume of bulk annuities in 2021: Aviva (£6.2bn), Canada Life (£1bn), Just Group (£1.9bn) and Standard Life (£5.5bn).

Meanwhile, Hymans Robertson and LCP estimated that £27.7bn of bulk annuity deals were secured in 2021.

The total £27.7bn was spread across almost 100 transactions during the year, according to Hymans Robertson, with approximately 75 per cent of this volume relating to buy-ins, and the remaining 25 per cent to buyouts.

The firm stated that whilst there was a slow start to 2021, with around £7.7bn in pension risk transfer transactions, H2 was the second highest ever for a six month period ending on 31 December, with around £20.9bn of buy-ins and buyouts completed.

Hymans Robertson also noted that there was a “steady increase” in demand for small- and medium-sized transactions in 2021, while transactions over £1bn included the Imperial Tobacco Pension Fund, Metal Box Pension Scheme, and Gallaher Pension Scheme.

Commenting on the figures, Hymans Robertson head of risk transfer, James Mullins, suggested that the quiet start to the year, combined with increased innovation in the longevity hedging space for non-pensioner members, led to some "very attractive buy-in and buy-out pricing" for schemes who approached the market during 2021.

He continued: “Most of the insurers were behind their targets by mid-2021 and this created particularly strong competition in the second half of the year. This was a key reason why the second half of 2021 was the second busiest ever six-month period for buy-ins and buy-outs.”

“The rapid growth in demand for pension schemes to insure their risks, along with improved pension scheme funding levels, attractive insurer pricing and new alternative risk transfer options, means that we expect around £50bn a year of buy-ins and buy-outs on average over the next 10 years.

“That means that, by the end of 2031, £1trn of pension scheme liabilities will have been insured, covering 5 million members’ benefits."

Mercer head of risk transfer, Andrew Ward, added: “Welcome to the new normal. As we saw from last year, bulk annuities volumes of around £30bn p.a. are here to stay, with a potential uptick in 2022 if some mega deals get done in H2.

"The continued strong growth in bulk annuities deals below £1bn demonstrates high and growing demand from maturing DB schemes wanting to take risk off the table and we were delighted to adviser on around a quarter of all transactions in 2021. The market coped well with a surge in bulk annuity deals over the second half of 2021, including the Mercer-led £2.2bn Metal Box buyout; the largest transaction of the year.

“Over 2022, we expect to see £50-60bn of risk transfer deals, with a number of jumbo bulk annuity and longevity swap deals already in the market, continued strong demand from small-to-medium sized schemes, the first DB superfund deals on the horizon and alternative strategies such as capital-backed journey plans starting to play a part in schemes’ risk transfer journey planning.

“Significant interest rate rises and widening credit spreads since the start of 2022 will have resulted in improved funding levels for many schemes. The unfolding market volatility, driven in part by the devastating situation in Ukraine, will nevertheless lend opportunity in 2022 for schemes who are well positioned, well prepared and actively scanning for opportunities.

"With expert guidance, trustees and sponsors can weigh-up the plethora of risk transfer solutions and seize suitable opportunities, all the while keeping a steady eye on their desired destination.”

LCP partner, Charlie Finch, commented: “Looking ahead, turbulence in markets as global events unfold could lead to buy-in pricing opportunities, similar to the market dislocations in early 2020 driven by the Covid-19 pandemic. We’ve been working with schemes to design practical flightpaths and put processes in place to capitalise on short-lived buy-in pricing opportunities that help them towards their long-term destination.

“Insurer competition is at its most intense in a decade with five insurers vying for top spot last year. Pricing is proving highly attractive as insurers hunt market share, helped by the rising yields on credit. The positive noises on reform to Solvency II is also welcome news for insurers and is likely to lead to greater insurer capacity for schemes looking to de-risk through buy-ins and buyouts.”

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