Surge in demand for UK pension insurance buy-outs set to bolster second half transactions

The UK’s 5,000 corporate defined benefit (DB) pension schemes continue to have sufficient assets on average to ‘buyout’ their pension promises, according to PwC’s Buyout Index, which recorded a surplus of £280bn in August. 

Meanwhile, PwC’s Low Reliance Index maintained a record surplus of £410bn. This index assumes schemes invest in low-risk, income-generating assets like bonds, which should mean the pension scheme is unlikely to call on the sponsor for further funding.

In light of these continued surpluses, schemes that would like to secure members’ benefits with an insurance company are continuing to make their preparations for buy-in transactions - so how is the market looking now that we’re into the second half of the year?

John Dunn, head of pensions funding and transformation at PwC UK, said:

“With funding levels staying strong for the UK’s DB schemes, and with the new end-game focused funding regime going live this month, the question of long term goals is rightly at the top of the agenda for trustees and sponsors. While a number of schemes that were targeting an insurance transaction are now re-evaluating their options, for example to consider running the scheme on, many are continuing full steam ahead towards their goal of securing members’ benefits with an insurer. As a result, demand for the insurance market remains extremely high. 

“Excess demand leads to increased supply and more competitive pricing - or so the theory goes - and so we’re seeing several new entrants come into the market, some who have already completed their first deals and others who are looking to do so over the coming months.” 

Dweenisha Caleechurn, head of bulk annuities at PwC UK, added:

“The first half of the year may have been quieter than expected, but we’re confident that overall, we’re looking at a record number of transactions this year. It is an incredibly busy second half of the year and with the current level of market activity, some schemes targeting transactions in 2024 could now even slip into early 2025. This will depend on capacity and appetite from insurers, which will continue to evolve as we approach the year-end depending on the deals different insurers have won. 

"It’s the small schemes which have been really driving the growth in the market over the last few years and it’s those well prepared schemes who are able to navigate insurers’ changing appetites and secure a successful deal despite the heavy demand. The new entrants to the market also want to tap into the small schemes market, at least to start off.”

The PwC Low Reliance Index and PwC Buyout Index figures are as follows: