Kelly Hurren, Aon UK Partner and Head of Member Options and Support, said,
We know a number of large insurers are seriously considering options for offering IFA support post-buyout, so you can expect this area to continue developing – there will be other insurers to follow.
Pension risk transfer market growth set to continue
The defined benefit (DB) pension risk transfer market is expected to exceed 300 transactions this year, according to LCP, with buy-in volumes projected to reach £40bn to £50bn for the third year in a row. The high demand for buy-ins suggests insurance continues to be the ‘ultimate endgame’ for most schemes.
The growth of the DB pension risk transfer market will see at least one new DB ‘superfund’ entering the market this year and another insurer joining the buy-in market in 2025, bringing the total to over 11 insurers. More competition should help ensure buy-in pricing remains attractive this year. However, non-pricing factors are also becoming more prevalent as with many schemes in surplus, other important considerations, such as member service, look poised to play a more prominent role in decision-making.
And while smaller scheme transaction numbers will grow as insurers devote more capacity to smaller schemes, LCP predicts total buy-in volumes will be dictated by larger schemes, such as NatWest, which insured approximately a third of its pension scheme through multiple buy-ins totalling a reported £11bn last year.
The age of the pension superfund?
The changing pension market dynamics and more positive sentiment could see pension superfunds feature more prominently in the risk transfer market. Iain Pearce, Hymans Robertson’s Head of Alternative Risk Transfer Solutions, said, "As superfund transactions become more common, we anticipate more schemes to view these as an attractive option. This could drive a positive feedback loop that could result in additional superfunds entering this market in the years ahead.”
With new providers entering the market, The Pensions Regulator (TPR) will play a critical role in responding to the fast-changing dynamics. The hope is that TPR strikes a balance between effective oversight and fostering innovation to support positive outcomes. Pearce added, “Endgame decisions can be complex… In our view, the tests laid out by TPR are a blunt tool and may not always be an accurate barometer for assessing the suitability of schemes to enter a superfund transaction. We expect an evolution of how these tests are conducted to ensure these do not become a blocker when a superfund transaction would be a positive outcome for members."
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