Bulk annuity defined benefit (DB) transactions in the £1bn to £2bn range are likely to become even more prominent in 2024, according to Standard Life.

Standard Life's DB solutions and reinsurance managing director, Kunal Sood, said that as a significant number of the UK's largest DB schemes are now in surplus and engaging with the bulk purchase annuity (BPA) market, a growing number of mega de-risking deals are expected next year.

Commenting on the outlook for bulk annuities, Sood said that 2023 has been a record-breaking year for the pension risk transfer market, with volumes set to approach £50bn.

"Activity levels are showing no signs of slowing down, and many of the trends we have seen will continue to evolve and push deal volumes even higher in 2024," said Sood.

"This includes a shifting regulatory environment and the ongoing dominance of full-scheme transactions."

He also suggested that the prospect of DB superfunds and an expanded remit for the Pension Protection Fund will not stop an increase in bulk annuity deals, arguing that insurance remains "the ideal solution" for a number of trustees, sponsors and members.

"While superfunds could be attractive for schemes with weak sponsors and no realistic prospect of buying out, they will unlikely impact wider demand in the BPA market," he argued.

"Sponsors and trustees continue to value the certainty that buy-out affords members in a volatile economic climate.

"Trustees and their sponsoring employers now have a number of principles to consider before entering into any transaction with a superfund, including evaluating expected timescales to buyout, insolvency risk of the employer, and the likelihood of members receiving full benefits."

Sood added that illiquid assets and their management will continue to be a key consideration in planning for buy-in or buyout.

Indeed, recent research by Standard Life found that 40 per cent of trustees have reduced scheme allocation to illiquid assets due to recent changes in the market environment.

"Schemes, especially those that hold illiquid assets, will be re-assessing their wider investment strategy as they get in optimal shape for a transaction," said Sood.

"While 100 per cent of trustees [according to Standard Life research] are considering the options available to them to manage illiquid assets as part of their journey to buy-out, many are not always simple or easy to process.

"This means insurers will look to support schemes in new and innovative ways, building on the tried and tested solutions such as deferred premium and secondary market sales that have become a staple transaction feature in 2023."

On the insurance side, Soods believes that providers will continue to scale-up their operations and invest in technology to meet increased demand.

"Given the importance of thorough administrative and preparatory work, we expect to see the wider market develop innovative solutions for schemes that have undertaken data preparation work, in order to support efficiencies in the de-risking process," he said.

"Insurers will also look towards technological developments and optimised client and operational services to further improve the efficiency of their processes."

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