Following a sharp rise in interest rates, many pension fund trustees have used the first half of the year to prepare their schemes for the bulk annuity market. The Pension Insurance Corporation (PIC) believes the increased demand could push the bulk annuity market to a record year.

According to PIC’s quarterly update, Gilt yields have risen to levels above those seen at the height of October’s liability-driven investments (LDI) crisis. Schemes that already have, or are due to come to market, will likely benefit from current market conditions.

Screenshot 2023-07-12 at 11.23.10

Mitul Magudia, head of business development at PIC, said that the de-risking market already “really accelerated” in the last year and “we are now seeing volumes approaching £50 billion in 2023.”

He said: “What we are now seeing is a point where all the schemes that we talked to five or 10 years ago have been spending all this time preparing their assets, preparing their data, preparing their benefits and investing in pensions and waiting for the moment where they can actually afford to get to buy-in and buyout.

“We finally seem to have arrived at that moment.”

Magudia added that the market is at a point where for the “first time ever” a very significant portion of schemes can afford to undertake this solution.

He added that historically only 5% of the £1.5trn market was ready for buyout, whereas now this percentage sits at 20%.

He said: “That’s about £300bn, not all of which will buyout, but clearly enough to drive very significant annual volumes in excess of current levels.”

Magudia added that while the demand is increasing, there’s “certainly enough capacity in the market to meet every pension scheme that comes out and asks for a quotation”.

He said: “What we found over the last four or five years is that even though the market has materially increased most years, and then stayed at a very high level, most insurances have increased their capacity or other insurers have come into the market. I think the market will continue to innovate and more insurers will continue to enter and that will start to counterbalance the fact that there is more demand.”

He added that the fact that pension schemes “take quite a long time to actually come to the market” will help ensure that capacity remains.

He said: “Even from the moment the schemes know they can afford it, it takes them often six to 12 months to get ready. That by nature, staggers the business that comes to the insurance market.”

Read the digital edition of IPE’s latest magazine