Surge in demand for buyouts set to fuel H2 de-risking transactions

Written by Jack Gray

05/09/2024

A surge in demand for pension scheme buyouts is set to drive transactions in the second half of 2024, according to PwC.

Its Buyout Index showed that defined benefit (DB) schemes continued to have sufficient assets on average to buy out their pension liabilities.

It found that the aggregate surplus fell by £5bn to August to £280bn, with a £45bn increase in liabilities outweighing a £40bn rise in assets.

The aggregate funding ratio also fell during the month, by 1 percentage point to 124%.

Meanwhile, PwC’s Low Reliance Index, which assumes schemes invest in low-risk, income-generating assets like bonds, maintained a record surplus of £410bn.

In August, schemes’ liabilities rose by £30bn to £1.06trn, equal to the increase in assets, according to the Low Reliance Index, which showed an aggregate funding ratio of 139%.

PwC UK head of pensions funding and transformation, John Dunn, stated that as funding levels stayed strong for the UK’s DB schemes, and with the new endgame-focused funding regime going live this month, the question of long-term goals was “rightly at the top of the agenda” for trustees and sponsors.

“While a number of schemes that were targeting an insurance transaction are now re-evaluating their options, for example to consider running the scheme on, many are continuing full steam ahead towards their goal of securing members’ benefits with an insurer,” Dunn conintued.

“As a result, demand for the insurance market remains extremely high.

“Excess demand leads to increased supply and more competitive pricing - or so the theory goes - and so we’re seeing several new entrants come into the market, some who have already completed their first deals and others who are looking to do so over the coming months.”

PwC UK head of bulk annuities, Dweenisha Caleechurn, added: “The first half of the year may have been quieter than expected, but we’re confident that overall, we’re looking at a record number of transactions this year.

“It is an incredibly busy second half of the year and with the current level of market activity, some schemes targeting transactions in 2024 could now even slip into early 2025. This will depend on capacity and appetite from insurers, which will continue to evolve as we approach the year-end depending on the deals different insurers have won.

"It’s the small schemes which have been really driving the growth in the market over the last few years and it’s those well-prepared schemes who are able to navigate insurers’ changing appetites and secure a successful deal despite the heavy demand. The new entrants to the market also want to tap into the small schemes market, at least to start off.”

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