The UK defined benefit (DB) pension risk transfer market is set for another record year in 2024, analysis from WTW has suggested, with an estimated £80bn in pension de-risking transactions expected to take place in 2024.

WTW’s annual Pensions De-risking report showed that insurers are primed to buy out £60bn in bulk annuity transactions and £20bn in longevity swaps this year, following significant DB pension scheme funding improvements in 2023.

These funding improvements have already triggered increased demand in the pension risk transfer market, as 2023 saw historically high numbers of pension schemes securing their liabilities through a buyout, with over £50bn written in bulk annuity deals alone.

This trend is only expected to increase, according to WTW, with many schemes having already changed their investment strategies to lock in favourable funding positions throughout the year and many also preparing their data in order to approach the insurance market this year.

Despite the high demand, WTW emphasised that opportunities remain for schemes of all sizes, suggesting that while more multi-billion pound transactions for large pension schemes are expected, there will also be suitable counterparties for smaller schemes to transact with.

However, the group acknowledged that, in a busy market, the quotation process will need to be tailored to each scheme's situation to maximise insurer engagement.

In addition to record deal values, WTW also predicted an increased focus on non-price factors when selecting an insurer, explaining that while price remains an important consideration, trustees will increasingly prioritise other factors, such as brand reputation, member experience and financial strength.

The group said that 2024 will also be a crucial year in the development of the superfund market as pension schemes explore whether this option suits their circumstances.

While superfunds may not become a mainstream endgame for the majority, WTW said that a few transactions in 2024 could pave the way for future momentum in the space.

WTW pensions transactions team director, Jenny Neale, stated: “It’s clear that funding improvements have turbo-charged the pensions de-risking market and, from a capacity perspective, we have already seen that the insurance market is capable of scaling up to meet demand.

“The attractiveness of these opportunities is also enticing new insurers to enter the market adding additional capacity, which we believe will be sufficient to meet requirements in the year to come.

“Despite the increased demand for de-risking, the Chancellor’s proposed Mansion House Reforms could give pause for thought for some pension schemes and their sponsoring employers.

“Whilst we expect buyout to be the long term destination for the majority of our clients, we have seen a number of schemes with strong sponsors initiating a fresh review of their long-term target and more schemes may choose to seek value in running on their pension scheme and delaying their move to buyout if a change in legislation allows easier use of any surplus run by the scheme.

“If this is the case, it’s unlikely that these schemes would wish to run unrewarded risks and consequently could look to hedge their demographic risks through the use of longevity swaps.”

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