DB schemes move closer to buyout following market volatility

Written by Adam Cadle

21/10/2022

The vast majority (95%) of pension schemes have seen their buyout position improve following recent market volatility, with 23% seeing an improvement of more than 20% in their position, according to research by XPS Pensions Group.

The survey asked representatives of over 300 pension schemes about their schemes’ buyout position, revealing that a further 79% expect to begin carrying out buyout-related work within the next two years.

XPS Pensions Group explained that although the recent market turbulence has created disruption in the pensions market, bulk annuity insurers have reported that they have been able to meet collateral calls without issue.

Industry trackers have also revealed improvements in defined benefit (DB) funding levels, as some schemes saw their buyout positions improve as a result of rising gilt yields, particularly for those not fully hedged.

Commenting on the findings, XPS Pensions Group risk settlement partner Jo Carter stated: “Recent market moves have created some interesting dynamics in the bulk annuity market.

"With rising interest rates, the level of insurer premiums is falling and so insurers need to write more or larger transactions to hit their target volumes.

“However, bandwidth constraints at insurers mean they are becoming more selective when deciding which schemes to bid for, focusing on well prepared schemes with a high degree of execution certainty.

“For those schemes pursuing buyout but concerned about attracting insurer attention, it’s important to monitor the market closely for opportunities, be flexible on timing and consider whether partnering with one insurer could deliver better results.

"For smaller schemes in particular, a streamlined approach could make the difference.”

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