Review of the de-risking market in 2023

The picture is even more pronounced when you consider that yields have been rising over the last couple of years meaning that recent deal volumes would be significantly higher when converted to “old money”. Allowing for these changing market conditions the total expected volume would be double the previous record!

As shown above in figure 1, the market has noticeably changed this year with a significant shift from pensioner buy-ins as a means of de-risking, to full scheme transactions, as more schemes are finding themselves better funded thanks to increased gilt yields and attractive insurer pricing. For many schemes, buyout remains the target end goal and this has been brought closer than previously anticipated. Others have been focussing on run off, possibly in conjunction with a partial buy-in or longevity swap to reduce demographic risk. And for those schemes for which those aren’t feasible options, the alternative of entering into a superfund agreement has now become a realistic possibility, with the first deal with Clara-Pensions (“Clara") having completed in November, paving the way for schemes in a similar boat to follow suit.

High demand has led to some insurers having to prioritise their resources, with some deals attracting fewer bidding insurers than we’d have typically seen in previous years as market demand increases, although pricing remained competitive for well-prepared schemes.

Despite the busy market we are proud to report that we have been able to secure a bulk annuity for every case that wanted to transact in 2023, with deals ranging in size from £2m to £2,700m. Later in this report, Greg Robertson shares some insights from the insurers about their triage processes and the implications for helping schemes maximise market engagement.

2023 highlights from the de-risking market:

• February saw the completion of the UK’s largest ever bulk annuity transaction for RSA (read more below).
• Canada Life completed its first ever deferred member buy-in, with a £58m deal covering around 300 deferreds and 270 pensioners.
• M&G re-entered the bulk annuity market, announcing two transactions in September of £286m for the Northern Bank Pension Scheme (led by WTW), followed by a £331m for one of its own schemes.
• The UK's first ever pensions superfund transfer was announced in November. The transaction with Clara was led by WTW as both the transactions advisor and Scheme Actuary to the Trustees of the Sears Retail Pension Scheme. Later in this report Suzanne Vaughan shares more about this landmark transaction and what it means for the future of this emerging superfund market.
• Four longevity swap deals were completed, namely a £5bn transaction for the BT Pension Scheme and a c£1.6bn swap for YCB Pension Scheme both led by WTW, a £1.7bn deal for the Nationwide Pension Fund and a £2bn deal for the MMC UK Pension Fund. The MMC transaction was another example of a longevity swap covering non-pensioner members, which is becoming increasingly common.

Reflecting on our predictions for 2023

In last year’s report, Tom Ashworth, a Director in our Transactions team, made a number of predictions for 2023. Let’s take a look at how ‘on the money’ these were.

And finally for something we didn’t predict

In July, the Chancellor, Jeremy Hunt MP, announced wide ranging reforms to the UK pensions regime, known as the Mansion House Reforms, and these proposals were formalised in the Government’s Autumn Statement. Part of the rationale of these reforms is to increase pension scheme investment in productive finance, but other ‘wins’ include an expectation of improved governance and, where appropriate, accelerated scheme consolidation.

These reforms – in particular the potential for sponsors to benefit more from surplus generated within schemes – have understandably caused some pension scheme sponsors and trustees to pause and reconsider their preferred endgame. The considerations for each scheme will vary – based on funding levels, scheme size and maturity, legal powers and covenant outlook. It’s likely most will reach the conclusion that buyout is still the best endgame home for their members but some may choose to run-on for a period, perhaps with a longevity swap, which could be helpful in easing the demand pressure in the bulk annuity market.