Bulk annuity market heading for £20bn – £30bn in 2020

Key messages for trustees

  • Bulk annuity pricing has settled at a level (relative to technical provisions and gilts flat liabilities) that is marginally cheaper than 2019.
  • TPR has set out how it will assess clearance for deals with Clara Pensions and the Pension SuperFund.

Bulk annuity pricing in 2020

Bulk annuity pricing continues to be cheaper than using gilts for pensioners in payment, as evidenced by the information received from insurers. For deferred members the cost of a bulk annuity remains greater than using gilts. We look forward to more evidence of DB superfund pricing to see what kind of discount can be achieved relative to deferred member insurer pricing in practice. It is worth noting that there have been some schemes transacting well below the insurer indicative costing levels in the chart above, taking momentary advantage of market volatility in March and April.

  • Deferred pricing: approximately equal to the liability measured on a ‘gilts – 0.35% pa’ yield.
  • Pensioner pricing: approximately equal to the liability measured on a ‘gilts + 0.2% pa’ yield.

TPR sets out how it will clear transactions for Clara-Pensions and The Pension SuperFund

After a ‘paint drying’ two-year wait, The Pensions Regulator (TPR) has given DB superfunds (currently Clara-Pensions and The Pension SuperFund) a framework around which it will give clearance for individual pension scheme transactions.

However, TPR has said again that it anticipates seeing superfund transactions only where a scheme cannot find the resources to afford a bulk annuity in the near future.

From a practical point of view:

• There is now the possibility of a cheaper way to secure schemes with lots of deferred members

• Schemes can obtain quotations from both insurers and superfunds (to enable the price difference to be seen)

Is COVID-19 affecting the price of reinsuring longevity risk?

Reinsurers are so far offering no reduction to pricing, citing death levels from all sources combined that are back down at normal levels. Nevertheless, they continue to look for trends in the economy, healthcare and longer term potential health impact.

See our XPS’s COVID tracker for the latest information on deaths, split by COVID and non-COVID.

Watch our June 2020 Webcast Bulk Annuities and Superfunds: opportunities as market turbulence continues

For further information, please get in touch with Harry Harper or speak to your usual XPS contact.