The value of the bulk annuity market is heading for a second successive record year as trustees continue to pass risk to insurers, one consultant believes.
Willis Towers Watson (WTW) predicts that up to £30bn of deals could complete in the year ahead, smashing 2018’s record, which was around £20bn at the time of writing.
The rising popularity of longevity swaps will be a factor in such growth with the consultant expecting deal-flow to double year-on-year to more than £10bn.
This reflects the volume of investment de-risking that most of its clients have undertaken, with longevity now the dominant remaining risk.
Growth will also be driven by expectations of more deals breaking the £1bn barrier. There were four such transactions in 2018, including a £4.4bn agreement between the trustees of British Airways’ retirement scheme and Legal & General.
Despite its forecast that the market will reach new heights, WTW does not believe it will all be plain sailing. Capacity constraints on insurers will bite for the first time and there is potential for upward pressure on the cost of insuring savers’ pensions thanks to strong demand.
Yet the consultant believes buy-outs will remain affordable for many schemes. This is due to people not living as long as previously thought, rising interest rates and equity markets reaching record highs, all of which will improve scheme funding positions and therefore lower the cost of de-risking.