XPS Risk Transfer News

Bringing you the latest news, insights and opinion on buyout, buy-in, bulk annuities and discharging risk

Key messages for clients

Schemes are sometimes closer to a full buyout than they think – many schemes are looking at actuarial estimates of buyout pricing that are based on legacy member data rolled forward from valuations done 1, 2 or even 3 years ago. Given the pace of scheme ageing, reductions in insurer pricing and volumes of retirements and transfers, the actual buyout position based on a new data cut from the administrator can be a lot different (and a lot lower) than estimated.

A market on fire, with 8 insurers standing on the gas

The bulk annuity market is pressing on at full speed. Volumes have gone from £1bn of bulk annuities in 2006 to £42bn of bulk annuities expected to be sold in 2019. The market does not appear to be able to go any faster, yet shows no sign of slowing down either this year or next, with the 8 insurers continuing at least for the moment to prefer volume over higher margin.

A series of huge schemes transactions have occurred in 2019 and been publicly disclosed

Insurer pricing remains volatile, but with no clear trend

Based on monthly insurer model points we track typical pensioner and deferred member pricing relative to gilt yields. Despite the obvious volatility in pricing, the chart is showing that insurer pricing has no decisive upwards or downwards trend over the last two years, relative to the cost of meeting the same liabilities with gilts, As always, pensioners in payment remain cheaper to insure than deferred members. Good pricing during the period, for a medium sized scheme, has been:

- Pensioner pricing: Broadly equal to the liability measured on a ‘gilts + 0.3%pa’ yield; and

- Deferred member pricing: Broadly equal to the liability measured on a ‘gilts – 0.5%pa’ yiel



Pricing at the end of 2019?

A few insurers say that discounts ‘might’ be available if they are short on volume by the year end. However, most indicate they are now looking to complete the cases they have already quoted on and intend to try and push other ‘new’ transactions back into 2020. Overall it feels that end of year discounts will be few and far between.

Pricing in the New Year?

Our best guess is that pricing will be the same in 2020 as in 2019, but this is only on the assumption that the pace of pension schemes coming to the bulk annuity market does not increase any further.

Financial market and political volatility is the big unknown and could cause huge movements in insurer pricing and scheme asset values. This could create bargains for some, and huge problems for others.


For further information, please get in touch with Harry Harper, Paula Haughton, Ash Williams or Jasel Mehta or speak to your usual XPS Pensions contact.

For more information about buyout, buy-ins and bulk annuity transactions see here.

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