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Half of the UK’s £2trn defined benefit (DB) pension liabilities will be insured within ten years, Hymans Robertson predicts.

The consultant's annual Risk Transfer Report - published today (17 February) - revealed £1trn of pension scheme liabilities will have been insured by 2031, covering the benefits of some five million members.

It said £1/3trn of pension scheme liabilities have already been insured, covering 1.4 million members' benefits, and half of that insurance has been put in place in the last three years.

The firm said in the last 15 years since DB schemes started using insurance in the form of bulk annuities, the risk transfer market has "taken off", resulting in £1/3trn of pension scheme liabilities already being insured.

Its report also suggested "a pattern is emerging" in terms of volumes of buy-ins and buyouts.

It said the total value of transactions each year is "dominated by relatively few very large pension schemes" and while annual volumes are "heavily dependent on jumbo transactions", Hymans Robertson said there has been a "steady increase" in the number of small and medium transactions.

The firm said this signals a "growing demand from schemes that are getting better funded over time, looking for opportunities to de-risk, and many of whom are headed towards the same endgame".

The firm also expects demand to "continue to grow", with three in five of its respondents announcing they are targeting full settlement via insurance or transfer to a superfund over the long term, compared to just one in five in 2016.

Partner and head of risk transfer James Mullins said: "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 that within ten years those figures will grow materially.

"We believe this will be to the extent, that £1trn of pension scheme liabilities will have been insured, covering five million members' benefits. That's half of all of the UK's private sector DB pension scheme liabilities."

He continued: "Pension scheme members in the UK will see a material shift over the next ten years. Up until now, their pensions have managed, and paid, by a group of trustees, linked to their previous employer.

"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 and so needs careful communication to set out the benefits.

"Five million, or more, individuals will increasingly look to the UK insurance regime, with oversight from the Prudential Regulations Authority and the Financial Conduct Authority, to protect their pensions going forwards.


Source Professional Pensions 18/2/2022


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