UK – A return to price levels not seen in a year should revitalise the bulk annuity market, consultancy Towers Watson has predicted.
Noting that, on the back of the recent £1.5bn (€1.7bn) deal by Pension Insurance Corporation to take on the EMI Group Pension Fund, transactions for 2013 stood at £3bn compared with £1bn at the same time last year, senior consultant Ian Aley predicted a growing number of pension funds would take advantage of the "favourable" conditions.
"We are back to the 2012 pricing environment, where schemes have the ability to exchange their Gilt investment for an annuity policy that provides a better match for their liabilities at no additional cost," Aley said.
He added that, based on the consultancy's pipeline of potential deals and its discussions with insurers, buyout policies could exceed £5bn by the end of the year.
However, Aley said 2013's transactions had seen an increased focus on non-pensioners being covered by insurance.
"Traditionally, the pricing for these members has been a long way from that for pensioner members, but our experience is that the gap has closed this year," he said.
"This could make whole-scheme buyouts more affordable for scheme sponsors and add to the level of activity we are already seeing."
Aley also said the completion rate for schemes requesting rates was higher than some in the industry perceived, with the consultant estimating that nine of 10 funds requesting quotes from insurers went ahead with deals.
"It is clear that those schemes that have ensured their data is in good order and have established the appropriate governance processes needed to transact quickly have been best able to take advantage of the favourable market conditions," he said.
He added that he believed that the conditions would continue despite a smaller number of providers competing for business – referencing the recent sale of Lucida to Legal & General.
"The remaining providers still produce a competitive market for pension schemes to access, and appetite from both sides remains very strong," he said.