Industry experts have suggested that the buy-in market could exceed £50bn every year for the foreseeable future, with a "tidal wave" of demand expected following recent funding improvements.

Hymans Robertsons' annual risk transfer report found that a "tidal wave" of demand is expected to lead to record buyout volumes exceeding £50bn, estimating that the market has the potential to hit £70bn over the next few years.

Indeed, the report explained that the material increase in long-term interest rates over the last year means that many pension schemes have seen significant improvements in their funding levels, revealing that, on average, pension schemes are now only roughly five years away from being able to afford to fully insure.

In particular, the firm predicted more multibillion-pound buy-ins, as well as full scheme transactions, estimating that 80 per cent of future bulk annuities will be whole-scheme buy-ins or buy-outs, in "stark contrast" with the last 16 years having been seen 80 per cent pensioner-only buy-ins.

Commenting on the findings, Hymans Robertson head of risk transfer, James Mullins, stated: “The buy-in market is close to entering its 18th year and its certainly now in a whole new phase of adulthood.

“The recent increase in demand from pension schemes to fully insure their members’ benefits has been incredible.

"As a result, we expect that by 2030, half of all of the UK’s private sector defined benefit (DB) pension scheme liabilities will have been insured, covering 5 million members’ benefits and close to £1trn of liabilities."

Barnett Waddingham also predicted an expansion in the bulk annuity market in 2023, with its risk transfer reporting placing estimates for 2023 market volumes at around £40bn, despite the reduction in absolute liability values for individual schemes relative to previous years.

The report also suggested that this year could see other forms of capital-backed risk transfer take off as schemes look to accelerate towards their endgame.

Barnett Waddingham also suggested that, given the lack of transactions announced in 2022, the industry will be watching to see whether capital-backed consolidation vehicles, or ’superfunds‘, can get off the ground with their first transactions.

The report argued that the bulk annuity market has shown incredible resilience over the last few years and is now set for extremely high demand from pension schemes.

However, industry organisations have emphasised the need for schemes to act to lock-in these recent funding improvements, particularly in light of the increased demand, with concerns that some schemes could miss out if they don't take steps to prepare.

Barnett Waddingham head of bulk annuities and risk transfer partner, Rosie Fantom, stated: “Many schemes are finding themselves either able to afford to insure their liabilities, or that the likely timescales for reaching this point have materially shortened.

“This sets the stage for a busy period across the risk transfer spaces as schemes look to prepare and complete transactions. We continue to see considered preparations and collaboration between trustees, sponsors, advisers and insurers being key to capturing market opportunities. “

Mullins echoed this, arguing that whilst excellent pricing remains, it is no longer simply a buyer’s market.

He stated: "Pension schemes need to be smarter than ever in the way they prepare and approach the market for buy-in quotations.

“For example, upfront shortlisting of insurers can be a powerful strategy in this new market phase. And for some smaller pension schemes, exclusive partnerships will deliver the best results.

“Pension scheme members in the UK will see a material shift over the next 10 years. Up until now, their pensions have been managed and paid by a group of trustees, linked to their previous employer. However, going forwards, their pensions will be increasingly managed and paid by insurance companies.

“Removing the link between their pension and previous employer will feel like a significant change to many members, so it needs careful communication to set out the benefits.

"We expect over 5 million pension scheme members to be transitioned to the UK insurance regime over the next 10 years, with oversight from the Prudential Regulations Authority and the Financial Conduct Authority.”

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