Busy year forecast for bulk annuity market

Market volatility resulting from the ongoing pandemic and Brexit could present derisking opportunities for schemes, a report for Willis Towers Watson suggests.

Over £30 billion of buy-ins and buyouts were completed last year, according to the group, while more than £24 billion of longevity swaps were carried out. However, a similar level could be transacted in 2021, the firm said.

According to the research, 40% of schemes are targeting a bulk annuity or longevity swap in the next three years.

The firm also said pricing offered by reinsurers for longevity swaps could continue to improve thanks to increased competition within the market and a continued slowing of mortality improvements, which had started prior to the pandemic.

Ian Aley, Managing Director in Willis Towers Watson’s Transactions team, said: “The pensions de-risking market has proved itself to be incredibly resilient and, while uncertainty will remain in 2021, we don’t see this denting the desire and ability for pensions schemes to complete risk management transactions.”

He continued, “However, it remains to be seen what impact Covid-19 will have on longer-term expectations for mortality rates.”

“For many schemes, the market pricing of longevity will currently look very attractive relative to their funding reserves. We therefore expect schemes will continue to look to lock into assumptions which are affordable against their current funding target to reduce future uncertainty as part of their wider hedging programmes,” Aley added.