UK Pension Risk Transfer Market to Quadruple in Decade

The UK’s bulk annuity market is forecast to quadruple over the next decade, driven mainly by lower pricing as more pension plans mature and additional reinsurers enter the UK market, according to consulting firm Mercer.

By the end of 2019, Mercer said it expects the bulk annuity market in Great Britain to exceed £40 billion ($52.6 billion), with the total UK risk transfer market, including longevity swaps, forecast to reach £50 billion.

Mercer said it has also seen strong demand for member option exercises, with more than £20 billion of individual defined benefit to defined contribution transfers via bulk exercises and individual requests expected by the end of the year.

“The next few years are looking bright for those schemes wishing to insure their members’ retirement income,” David Ellis, a partner at Mercer, said in a statement. “As the UK’s defined benefit schemes mature, the length of insurance contracts reduce, making them more predictable and cheaper to buy. Despite the increased demand, there is still capacity in the market for well-prepared schemes.”

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Mercer said that although this year has seen record-sized transactions, including around a dozen worth more than £1 billion each (including a £7 billion longevity swap), it has also seen significant activity at the smaller end of the scale.

According to the firm’s pension buyout report for the third quarter, total premium volumes in the UK for 2018 were £24 billion, which it said was the highest annual premium volume ever written, easily surpassing the previous high of approximately £13 billion in 2014. In addition to the regular bulk annuity business, Prudential sold approximately £12billion of its annuity portfolio to Rothesay Life in what was the largest ever UK insurer “back book” annuity business transaction.

“It is looking like 2019 will be another recording-breaking year,” said Mercer in the report. “Despite continuing uncertainty around the UK’s departure from the EU, to date there have been few signs that this is having any noticeable impact on the buoyant bulk annuity market.”