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| 1 minute read

PRT market to strike record high

The pension risk transfer market is expected to hit a high point in 2023, breaking records, according to Barnett Waddingham's study. They estimate that an extra £20-30 billion in bulk annuity deals will close by the end of the year, making the total 2023 deal value over £40 billion. This surge in activity is driven by increased demand from schemes to insure their liabilities, fuelled by a notable improvement in scheme financing over the last 18 months.

Various factors, like safer investment plans, unexpected funding boosts, and increased gilt yields, contribute to this improvement. The time it takes for FTSE 350 pension schemes to finish their plans is now down to 5.3 years from 10.2 years in 2021, according to Barnett Waddingham's 'End Gauge.'

Despite changes in interest rates, the analysis reveals a significant increase in transaction sizes, averaging £220 million in H1 2023 compared to £115 million in H1 2018. Barnett Waddingham anticipates a similar-sized market in 2024, potentially dominated by a small number of exceptionally large trades. However, there is concern that smaller transactions might get lost in the market's pace and significant deal sizes, with insurers segmenting the market and placing complex requirements on schemes.

The busy market might be too much for pension administration teams and insurers' teams, putting a strain on resources. While the market is adapting to drive efficiency and respond to heightened demand, the risk of a bottleneck for schemes focused on winding up remains. Barnett Waddingham advises schemes and sponsors to be well-prepared, emphasising the importance of readiness for a positive route to transaction and a higher degree of overall cost certainty.

The analysis also suggested that around one third of FTSE 350 DB schemes are now fully funded on a buyout basis, representing around £160bn of liabilities, and many schemes are taking steps to lock in those positive improvements.


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