Two new entrants are expected to enter the UK buy-in market in 2024 — according to pension consultants LCP.
Increased activity in this area, which has seen a record volume of buy-in and buy-out transactions from DB schemes, has attracted new capital providers seeking ways to participate in the growth of this market.
This includes current UK insurers, overseas insurers and a range of investors expressing appetite to join the market. LCP says it expect either an acquisition on of the existing nine existing bulk annuity providers or a new entrant to launch as a new provider in this market.
The buy-in market is expected to achieve new record volumes in both 2023 and 2024, with schemes looking to take advantage of improved funding positions. LCP estimates that 2023 will finish on around £50bn of buy-ins/outs – comfortably exceeding the previous record of £43.8bn in 2019.
LCP is forecasting that the market will reach £50bn to £65bn in 2024. This will be driven by a record number of £1bn+ deals, with insurers reporting particularly strong pipelines of bigger deals.
Looking ahead to 2024 LCP says pricing in this market is likely to harden, but attractive opportunities will still be available. It says that some insurers are now reporting greater challenges in asset sourcing on bulk deals as the market settles into a higher interest rate environment. However, it says there will still be attractive pricing opportunities for schemes whose advisers run an effective insurer process, attracting a good level of competition.
It adds that the Mansion House reforms are already encouraging much positive debate about “run-on” and other endgame innovations, such as superfunds and some alternatives to buy-out. LCP points out that the first superfund transaction by Clara in November last year was a key landmark, but it says the impact of these wider mansion house reforms will depend on the appetite of any new government to drive forward this initiative.
With many schemes having complex and specific requirements, LCP adds that it expects to see further sole insurer processes over 2024, which can be effective in the right circumstances. However, it says it is still seeing strong demand for multi-insurer processes.
All schemes – even down to £10m – can run multi-insurer processes if they wish and should not feel forced to go down a sole insurer route to access pricing.
LCP partner Charlie Finch says: “The buy-in market is on a rapid upward trajectory, and we’re expecting that to bring significant new investment to the market this year. We are in discussions with six potential providers weighing up their options for entering the market, which will be welcome news to the many pension scheme sponsors and trustees looking for a competitive market to provide a long-term, secure home for their members’ benefits.
“2024 looks on course to set new records driven by a growing wave of schemes seeking buy-in and buy-outs. Pension schemes need to recognise that market dynamics are now fundamentally different, with insurers’ operational capacity and bandwidth being stretched, but we remain positive about the market’s ability to rise to this challenge. We’re confident that 2024 will bring attractive opportunities for schemes that run effective processes.”
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