UK pension risk transfer market breaks £10 billion barrier in 2011

The UK pension risk transfer market had a record year in 2011, with the combined total volume of longevity swaps, pension buy-ins and buy-outs breaking the £10 billion barrier for the first time in a single calendar year. This reflects the growing awareness from pension scheme trustees that longevity risk is a real issue that they need to address and the growing desire to offload longevity risk to another party who are better able to tolerate and bear that risk for them.

Lane Clark & Peacock LLP, a firm of actuarial and business consultants with a focus on the pension market, published a press release discussing the record year for pension risk transfer yesterday. They break down the UK market from 2011 as over £4 billon worth of pension buy-ins and buy-outs and £7 billion worth of longevity swaps throughout the year, bringing the total volume of risk transferred to £11 billion.

Clive Wellsteed, LCP’s Head of Buy-out, said; “The dynamics in the fourth quarter were particularly interesting – three high-value longevity swaps, two high-value PPF rescue cases and a stream of pensioner buy-ins. In effect, three completely different types of transaction.

Looking forward, LCP expects pensioner buy-ins to underpin the market’s growth in 2012, particularly for schemes already invested in gilts. Current pricing means that pensioner transactions can often be closed with no impact on the funding deficit or agreed cash contributions.”

He concluded; “In an environment of low yields a pensioner buy-in is a concrete de-risking step, for companies and trustees, that doesn’t have a large price tag attached. This simple fact should help ensure that business volumes exceed £10 billion in 2012.”

This article we published the other day breaks down the longevity swap deals from 2011 and prior years. Our table puts the Pilkington deal as a 2012 transaction based on when it was announced, but according to LCP it was actually completed during 2011.