2024 was a “bumper year” for the U.K.’s pensions risk transfer market, with £40 billion to £50 billion ($51 billion to $63 billion) of buy-ins for the third year running, and over 300 transactions for the first time, according to a report from consultant Lane Clark & Peacock.
In the report, LCP said it expects there will be at least one new defined benefit superfund and one new insurer entering the U.K. market in 2025. The first superfund transfer for a nondistressed plan sponsor was completed by Clara-Pensions with Wates in December, which could also lead to a wider range of sponsors and trustees to look at superfunds as a credible endgame option.
Last year, two new insurers entered the U.K.’s pension risk transfer market, Royal London and Utmost Life & Pensions, with LCP expecting both to increase their deal volume in 2025.
LCP also predicted insurance will remain the ultimate endgame for the majority of pension plans, driving continued high demand for buy-ins over the next decade. Total 2025 buy-in volumes are also expected to be influenced by the individual decisions and strategies of large plans, such as NatWest Group Pension Fund, London, which completed buy-ins totaling a reported £11 billion last year.
LCP also expects there will be an increase in pension plans that will wind up and move to pension risk transfer in 2025, going to 150 from around 110 in 2024. This growth is expected to place “huge resource demands on the industry,” for insurers, pension plans and administrators, given the detailed work required to prepare for such a transition.
“Buy-in pricing from insurers over the second half of 2024 was at its best level in many years, despite additional yields on corporate bond assets typically held by insurers being close to record lows,” said Ruth Ward, a principal in risk transfer at LCP, in the report.
“Given the insurers’ ability to source a wide range of assets across both U.K. and overseas markets and their appetite to innovate, we remain optimistic that pricing will continue to be favourable over 2025,” Ward added in the report.
In total, U.K. pension plans have an estimated £1.4 trillion in assets, according to LCP.
