UK could see pensions buy-out boom over next three yearswritten by Bella Palmer
Soaring gilt yields have seen pensions schemes funding levels increase, meaning pensions funds are increasingly seeking to lock in those gains while avoiding market turbulence
The UK could see £200bn worth of pensions buyouts over the next three years as higher gilt yields and increasingly volatile markets boost the attractiveness of bulk purchase annuity deals, analysts have said.
The market for bulk purchase annuity deals could show fast paced growth over the next few years as pension funds seek to de-risk their schemes by passing liability over to insurers.
Soaring gilt yields have seen pensions schemes funding levels increase, meaning pensions funds are increasingly seeking to lock in those gains while avoiding market turbulence.
Higher returns from government bonds has caused average funding levels of UK pension funds to hit levels of 90 per cent – with signs that many smaller pension schemes may now be fully funded.
Higher yields from government bonds also make pension buyout deals more attractive to insurers taking over pensions through bulk purchase annuity deals, the analysts said.
The combination could trigger a market boom that sees £200bn worth of pensions buyouts carried out over the next three years – compared to overall sums of £220bn over the previous decade.
A bulk purchase annuity lets a pension fund pay a specialist insurer a lump sum to take responsibility for a pensions scheme. In return, the insurer takes liability for any payments in ensuring members pensions get paid.
The analysts noted two-thirds of pensions schemes with under £1bn worth of assets under management are currently planning a buy-out deal.
The forecast comes after the value of UK bulk purchase annuities is set to hit record highs this year, with £12bn worth of deals carried out in the first six months of 2022 alone.
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