Consultancy LCP expects that at least one defined benefit (DB) superfund is formed and one new insurer enters the UK’s pension risk transfer (PRT) market in 2025.
The first superfund transfer for a non-distressed sponsor was completed by Clara-Pensions with Wates Group in December, opening the door for a much wider range of sponsors and trustees to look at superfunds as a credible endgame option.
This, coupled with the fact that the superfund regulatory framework will be put on a much stronger footing when it’s formalised in the 2025 Pensions Bill, means that LCP expects to see at least one new superfund confirm its planned market entry this year.
LCP also predicts one further new insurer to enter the PRT arena in 2025, taking the UK buy-in market to a record 11+ insurers.
Last year saw Royal London kick off its entry into the bulk annuity market, as well as Utmost.
LCP has not named the insurer it expects to enter the market. However, in June last year, Canadian private capital giant Brookfield expressed appetite in the UK pension insurance market by applying via its insurance arm to set up a new insurer with the Bank of England’s Prudential Regulation Authority.
LCP pointed out that 2024 saw full buy-in pricing reach its best level in years outside of a crisis period. The consultancy expects buy-in pricing to remain favourable as insurance capacity continues to exceed demand and as new entrants make their presence felt, further increasing competition.
The consultancy also expects another bumper year with £40-50bn of buy-ins for the third year running and over 300 transactions for the first time.
It said that well-funded schemes are finding themselves in a position of real choice between insurance, run-on, or a combination of the two. However, it expects insurance to remain the ultimate endgame for the majority of schemes, driving continued high demand for buy-ins over the next decade.
It added that the total 2025 buy-in volumes will be influenced by the individual decisions and strategies of large schemes, such as NatWest which completed buy-ins totalling a reported £11bn last year.
LCP also expects numbers of smaller scheme transactions to continue to grow as insurers increase their dedicated capacity, which will propel 2025 transaction numbers to new heights.
Charlie Finch, partner at LCP, said: “We are predicting a vibrant year for the UK pensions risk transfer market in 2025 with £40bn to £50bn of buy-ins for the third year running and a record 300+ transactions. Last year’s new insurer entrants – Royal London and Utmost – will begin to step up their market presence and we are anticipating a further entrant that will propel the market to a record 11 insurers competing for a share of the c£1.4trn assets in the UK DB pension schemes.”
He added that the fledgling superfund market is set for expansion on the back of a new regulatory framework that is due to be laid before Parliament this year.
He said: “We expect at least one superfund to enter the market this year – joining Clara-Pensions which has now grown to c£1.4bn – and bringing superfunds more into the mainstream as an option for less well-funded pension schemes.”
Ruth Ward, principal at LCP, added that buy-in pricing from insurers over the second half of 2024 was at its “best level in many years”, despite additional yields on corporate bond assets typically held by insurers being close to record lows.
She said: “Given the insurers’ ability to source a wide range of assets across both UK and overseas markets and their appetite to innovate, we remain optimistic that pricing will continue to be favourable over 2025.”
Ward added that despite fears of a capacity crunch, the smaller end of the market is performing well and is seeing rapid growth thanks to a number of dedicated services established by insurers for smaller schemes.
However, she said that the record transaction activity is putting an ever-growing strain on third-party pension administrators who are being asked to work through long lists of historic data issues to get schemes ready to buy-in and ultimately wind-up.
She said: “We estimate the number of schemes set to wind-up this year will grow by over 33%. Running a smooth and timely process to achieve this ultimate milestone is a key challenge for the pensions industry as the DB pensions universe slowly runs off.”
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