Pensions De-Risking

May 2022

The de-risking of defined benefit (DB) pension schemes is not a new concept, but the market is growing and evolving. In our #AttentionPensions de-risking video, Victoria Jeacock explores some recent developments that may encourage trustees and corporates to reassess whether this area merits further exploration. Contact us if you would like to discuss options for your pension scheme.

What Is Driving Growth in 2022?

The increased appetite for de-risking can be shown by the huge growth in the buy-in/buyout market; in 2021, the total transactions exceeded £30 billion and this is set to grow to an estimated £40 billion in 2022. Growth is being driven by:

  • Improved pension scheme funding levels due to strong investment returns and rising interest rates
  • Competitive insurer pricing
  • The number of larger pension schemes (£1 billion plus) looking to buy in/buy out.
  • The background work before a buy-in contract is signed can take months. Many schemes are undertaking essential preparatory work now so that they can proceed to buy-in more quickly when the pricing is favourable.

Other De-risking Options

  • Investment strategy – One for your investment consultants to assist you with, to the extent that this has not already been explored.
  • Incentive exercises – Enhanced Transfer Value exercises and Pension Increase Exchange exercises are the main incentive exercises that will shift inflation and longevity risk away from the sponsor.
  • Highlighting member options – A gentle reminder of members’ ability to take pension as a small lump sum commutation or of the ability to take a transfer value at retirement will increase take-up rates of these options.
  • Longevity transactions – These are formulated as insurance policies, which become assets of the scheme and are similar to buy-in policies (although longevity is the only risk covered). Historically, insurers’ appetites for longevity transactions were limited to pensioners, but in 2021, we saw the first non-pensioner longevity transaction and there are predictions of such transactions totalling £25 billion in 2022.
  • Commercial consolidators – Again, another predicted growth area; one commercial consolidator is aiming to take on £5 billion of business by the end of 2023.

De-risking is just one of the topics we are covering in our #AttentionPensions campaign, aimed at helping pension trustees demystify the myriad pensions issues and obligations in a series of easily accessible short videos, quick guides and updates. Find out more.

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