Unprecedented Growth in DB Pension Scheme Risk Transfer Market
The second half of 2024 witnessed a monumental surge in the DB pension scheme risk transfer market, with a staggering 165 deals executed between July 1 and December 31. The total value of these transactions reached an impressive £32.6 billion, setting a new benchmark for the industry and outpacing the previous high of £28 billion recorded in the latter half of 2023.
The overall value of buy-in deals for 2024 was reported at £47.8 billion. Notably, large defined benefit (DB) schemes continued to dominate the risk transfer landscape, with six insurers completing 12 significant buy-in transactions, each exceeding £1 billion. These mega-deals collectively accounted for over £20 billion in the second half of the year, representing nearly two-thirds (65%) of all bulk annuity transactions during this period.
As insurers refined their procedures, the capacity for smaller schemes also expanded, leading to a record number of transactions in this segment. The report highlighted notable innovations within the bulk annuity sector as well as alternative risk transfer solutions in 2024. Notably, M&G completed its first ‘value-share’ bulk purchase annuity transaction, while Clara-Pensions advanced its role as a ‘bridge to buy-out’ by securing two transactions.
Insights from the H2 2024 Report
Lara Desay, Head of Risk Transfer at Hymans Robertson, stated: “The results from 2024 align with expectations, marking another record-breaking period for the risk transfer market. The sheer volume of transactions has spurred innovation across the industry, with new entrants like Royal London and Utmost intensifying competition. Smaller schemes have benefited from improved funding levels throughout the year, facilitating their ability to secure benefits with insurers as competition in this area intensifies.”
Desay further cautioned about a potential bottleneck, anticipating many bought-in schemes moving towards buy-out shortly. She emphasized the need for insurers to bolster their post-transaction operations to manage this anticipated demand surge effectively.
Trustees are advised to thoroughly assess each insurer’s administration and transition processes prior to embarking on their buy-out journey, ensuring a seamless transition.
Future Projections and Market Expansion
Looking forward, the high volume and value of buy-ins observed in 2024 are expected to set a new standard. The influx of new market entrants should enhance competition, addressing the growing demand as the number of insurers reaches unprecedented levels.
The risk transfer market is poised for continued growth, offering promising opportunities for pension schemes in 2025 and beyond.
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