Pension risk transfers headed for record year in U.S., U.K. – report

Pension risk transfer markets in the U.S. and U.K. are on track to reach record levels in 2023 as funding ratios improve, according to Legal & General Group's latest Global PRT Monitor.

In the U.K., the report cited "unprecedented acceleration in demand" that has pushed the pension risk transfer market there to a record high in the first half of the year, with more than £20 billion ($25.4 billion) of transactions that have been made public.

"Market movements in the past year coupled with structurally higher interest rates have significantly improved pension scheme funding levels and taken five years off the average scheme's projection to its full funding date," the report said.

In the U.S., the PRT market "appears poised to set another record" with an estimated $22 billion in total transaction volume through June, the report said. That is 31% higher and $4 billion more than a previous record set in the first half of 2022, and well above the $8.7 billion in transactions in the first half of 2021, the report said.

Andrew Kail, CEO of Legal & General Retirement Institutional, said in a news release about the report that the trends represent "an inflection point" for the U.K. pension risk transfer market, while George L. Palms Jr., president of Legal & General Retirement America, called it one of the healthiest markets in the U.S., driven by improved funding ratios.

Driving the U.K. trend are large transactions of more than £1 billion, with 20 transactions quoted so far his year, including a £2.7 billion buy-in for British Steel Pension Scheme, Glasgow, Scotland, in May.

U.S. demand is being driven by several factors, including rising funding ratios that increased to 103.5% by the end of June from 99.8% in January, according to LGIMA estimates.

The report also noted larger average premiums per transaction, which have increased 62% over the past five years, and a 31% increase in the number of completed transactions between 2020 and 2022.

Some of the larger transactions include International Business Machines Corp.'s $16 billion transaction in September 2022, and AT&T Inc.'s agreement announced in May this year to settle $8.1 billion in liabilities. The IBM deal was the largest U.S. pension plan buyout transaction in a decade and the second largest in U.S. history.

If those jumbo deals continue in 2023, U.S. PRT transaction volume could exceed $40 billion in 2023, the report said.