UK Pension Risk Transfer Market Drops to £26 Billion in 2022

Total market volume for the U.K. pension risk transfer market declined to £26 billion in 2022 from £30 billion in 2021, according to data from Legal & General. Despite the decline, it was the fourth straight year the market surpassed £25 billion and is estimated to be the fourth largest year on record.

Approximately £12 billion of the 2022 volume came during the first half of the year, with approximately £14 billion in the second half. There were with five deals during the year worth more than £1 billion: the British Steel Pension Scheme’s second and third buy-ins with Legal & General, which totaled more than £4 billion; the Co-operative Bank Pension Scheme’s £1.2 billion full buy-in with Rothesay; Electronic Data Systems 1994 Pension Scheme’s £1.1 billion full buy-in with PIC; and the WHSmith Pension Trust’s £1 billion buy-in with Standard Life.

According to Legal & General, that improved pension funding levels have greatly accelerated the number of pensions looking for a buyout, and some market participants have projected demand for buy-ins and buyouts could reach £200 billion over the next few years.

“Increasing numbers of UK pension schemes are looking to insurance to provide security to their members,” John Towner, head of U.K. pension risk transfer at Legal & General Retirement Institutional, said in a release. “Our market has continued to deliver for pension schemes in all varieties of environments. We are excited for what we expect will be a busy few years ahead.”

However, the firm said the robust market volume belies the sharp drop in liability values and that deals that closed toward the end of 2022 would have been significantly larger by transaction value had they been completed earlier in the year. According to Legal & General, 2022 could therefore be considered the second busiest year on record. It also said that the BSPS deal represents one of the largest de-risking arrangements the firm has ever implemented with a single partner in a calendar year.

Looking ahead to 2023, Legal & General expects accelerating demand for pension risk transfer deals, saying there has been a “notable increase” in the number of pension plans approaching the insurance market and that the pipeline this year “is the busiest we have seen.” It adds that, “for insurers and industry counterparties this will mean stepping up to the challenge to increase capacity.”

The firm also said it expects more full pension buyouts this year, as an increasing number of plans can afford to fully insure their liabilities. It said a good indicator of this was that 18% of plans were estimated to be fully funded as of the end of September 2022, up from 5% the previous year.