Pension risk transfer activity is projected to total £ 60 billion in 2022

Due to strong demand and “significant” improvements in funding levels, the pension risk transfer transactions could reach £ 60 billion in 2022, Mercer predicts.

If activity hits this level next year it would be a record year for buy-ins, buyouts and longevity swaps in the UK.

The previous record volume in 2020 was 55.8 billion.

Mercer explained that the increased volume in 2022 was due to a variety of factors, including a backlog and better affordability due to improvements in the level of funding of the defined benefit schemes (DB).

Steps to reduce investment risk, improve data quality and clear plans to cope with GMP offsetting were also cited as factors driving the expected increase in transactions.

The company pointed to DB Superfonds, which are expected to close their first deals in 2022, to “give further boost” to alternative risk transfer options.

“We expect 2022 to be the busiest year on record, with more ‘jumbo’ buy-in and buy-out deals and expected longevity swaps,” said Andrew Ward, Head of DB Risk at Mercer UK.

“Since demand is likely to overwhelm vendors’ ability to generate offers and execute transactions, preparation with a clear understanding of the transaction criteria is critical.

“With the level of funding improving this year and the increased regulatory focus on long-term funding goals, more programs will weigh a diverse and growing range of risk transfers and alternative options to keep members safe and meet their ultimate goals.

“The starting point must be a clear understanding of goals and solutions, so that trustees and sponsors can determine the right path and then proceed confidently.”

Looking back on 2021, Ward added, “2021 was a year of two halves, with longevity swaps and small to medium-sized annuity annuity deals dominating the first half of the year and an increase in annuity annuity deals in the second half.

“The big winners were the well-prepared programs that came onto the market early with clear price targets and compact placement processes. Despite the ongoing challenges for many from the evolving Covid-19 pandemic, the main reason for protecting against uncontrolled risks remains. “

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