MERCER FORECASTS QUADRUPLING OF UK PENSION SCHEME BULK BUY-OUTS OVER NEXT DECADE

9 December 2019
United Kingdom, London
 
  • Increased activity driven by more affordable pricing as schemes mature
  • 2019 risk transfer set to total around £50 billion, close to double that of 2018, in addition to individual DB to DC transfers which will exceed £20 billion
  • Market for smaller buy-outs remains active 

Mercer forecasts accelerated growth in risk transfer over the next decade, with the bulk annuity market expected to quadruple compared to the current decade, which saw £135 billion paid to insurers. The growth is expected to be driven by a combination of factors, but mainly lower pricing as more schemes mature and additional reinsurers enter the UK market.

 

David Ellis, Partner, Mercer commented: “The next few years are looking bright for those schemes wishing to insure their members’ retirement income. 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.”
 

Mr Ellis added: “Schemes that want to take risk off the table need to do their homework before they approach insurers. Key steps include understanding the range of options available and choosing the best approach for the scheme, putting the right governance and decision-making structures in place and getting data and benefit information ready for transaction.”
 

2019 in review
 

By the end of 2019, Mercer expects the bulk annuity market to exceed £40 billion, with the total UK risk transfer market (including longevity swaps) expected to hit £50 billion. Mercer has also seen strong demand for member option exercises, with a total of over £20 billion of individual DB to DC transfers (both via bulk exercises and individual requests) expected by the end of the year.
 

In a year of record-sized transactions, including around a dozen over £1 billion (including a £7 billion longevity swap), Mercer has also seen significant activity at the smaller end of the scale. Alongside their work on larger transactions, the firm has led on dozens of transactions under £50 million in liabilities.
 

Ruth Ward, Principal at Mercer, said: “Our acquisition of JLT earlier this year consolidates our leadership in this space. We can now bring our risk transfer expertise to hundreds more DB pension schemes. Smaller schemes are certainly having to work hard to gain traction with insurers, but there are great opportunities for those who are well-prepared. It’s essential to make it as easy as possible for insurers to quote and our streamlined service does just that, cutting timescales for initial pricing to just 10-15 days every month for many smaller schemes.” 

 

 

About Mercer
 

Mercer delivers advice and technology-driven solutions that help organizations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan Companies (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people with 76,000 colleagues and annualized revenue approaching $17 billion. Through its market-leading businesses including MarshGuy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority. 

 

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