Analysis from LCP shows that the number of UK private sector defined benefit (DB) pension schemes fully-funded on buyout has increased to 20%, equating to 1,000 schemes and around £275bn of assets out of the £1.4trn total in UK DB schemes.

This, according to LCP, represents a “seismic shift” with a large rise in the number of schemes seeking to transfer to insurers as its analysis found that there was an increase of over 50% in the number of schemes approaching insurers for buy-in/out quotations compared to last year.

LCP projects that a further 1,250 schemes will reach full funding on buyout within the next five years, further accelerating the boom in the pension buy-in and buyout market.

Volumes of assets transferring to insurers over the next five years are projected to reach up to £360bn. This represents a “substantial” uptick from historic levels, with volumes over the past five years totalling £155bn.

According to LCP, early indications of this shift can be seen in the record £21.2bn of assets transferred to insurers in the first half of the year, putting the year on track to exceed the previous record of £43.8bn of buy-ins/outs in 2019.

Amid the booming demand, LCP highlighted that insurers have been scaling up through extra people, improved technology, extended assets and streamlined internal processes.

Pricing has remained highly competitive at all size levels, however, LCP said that evidence shows that insurers are becoming more selective with a 20% reduction in the proportion of insurers that agree to provide a quotation.

Charlie Finch, partner in LCP’s de-risking team, said that there has been a “seismic shift” in the DB pension landscape in the past year as the number of schemes seeking to transfer to insurers has surged on the back of tumbling buyout shortfalls.

He added that the record for the largest scheme to achieve full insurance has been broken twice this year already – once by the RSA Group at £6.5bn in February and then by the British Steel Pension Scheme at £7.5bn in May.

“Our analysis shows that this trend is only likely to accelerate with nearly half of the c.5,000 DB schemes projected to be fully funded on buyout within five years,” Finch said.

Imogen Cothay, partner in LCP’s de-risking team, added that insurers are rising to this challenge, and despite short-term resourcing pressures, insurers are confident about their capacity to support record-breaking demand over the coming years.

She continued: “As activity ramps up, insurers are being more selective on which schemes they work with, but we are still seeing strong competition, even for smaller transactions. That being said, schemes who wish to target insurance need to be strategic in their approach.”

Cothay added that the balance of power in the market “has shifted” and schemes need to be able to justify to insurers through targeted preparation and by agreeing on a suitable route to market, why those insurers should participate in their transaction processes.

Chris Anderson, EY bulk annuity consulting lead, agreed that insurers were being more selective in prior years. He said it is in part due to significant regulatory and accounting changes such as the introduction of IFRS 17 and the ongoing Prudential Regulation Authority’s (PRA) consultations on Solvency UK, so it has never been more important for schemes to come to market fully prepared.

He added: “Given the high – and sustained – level of demand for schemes currently, firms are continuing to invest in capability and innovation, and we have also witnessed several new firms exploring entry to the market.”

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