A record-breaking fourth quarter saw the combined value of pension fund buy-in, buy-out and longevity swap deals smash the £10bn mark in 2011, consultants LCP have calculated.

The total of over £11bn in volume is a record in a market that is just a few years old, and beats £8.3bn worth of deals in 2010.

Leading the way was the £3bn longevity deal sealed between Deutsche Bank and the Rolls Royce pension scheme in November. The swap sees the bank take responsibility for the financial risk of the 37.000 pensioners in the car manufacturer's scheme living longer than expected.

ITV, British Airways and Pilkington were other corporations whose pension funds entered into longevity swap arrangements with financial institutions during 2011.

The £7bn combined value of longevity deals last year is comfortably short of the £10 - £15bn that Aon Hewitt's Martin Bird, a key longevity transaction figure, predicted when speaking to Pension Funds Insider in February last year.

LCP and other advisers are confidently predicting a number of deals remain in the pipeline for 2012. With 12 FTSE 100 firms' pension funds now having entered into longevity swaps, and the strong desire of companies to remove risk from their pension schemes remaining, the trend will, in all likelihood, continue apace.

Insurance giant Legal & General officially entered the longevity swap market by completing its first deal (worth £1bn) just before the end of the year with glassmaker Pilkington. This should add further imputes to the growing market. 

The Life & Longevity Market Association, composed of banks and insurers aiming to establish a longevity risk market, estimates that a mammoth £2 trillion of longevity risk remains exposed within UK pension funds.

In, out, in, out

Buy-in and buy-outs, together insured some £4bn of business in 2011, LCP claim. These deals between pension funds and insurers offer more comprehensive coverage of liabilities but due to expense are seen as being more suited to smaller funds.

The fourth quarter saw an impressive £2bn worth of buy-in and buy-out deals alone - and the final figure might be more than this if deals completed in this quarter are still to be made public. Nonetheless the annual total was down on the £5.3bn of business that Legal & General calculated to have taken place in 2010 – and substantially less than the £8.2bn concluded in 2008.

Clive Wellsteed, LCP's buy-out chief, told press that favourable pricing should see buy-in and buy-out deals continue the momentum they gained in the final quarter – the busiest ever for LCP's buy-out advisory business.

Wellsteed said: "Looking forward, LCP expects pensioner buy-ins to underpin the market's growth in 2012, particularly for schemes already invested in gilts. Current pricing means that pensioner transactions can often be closed with no impact on the funding deficit or agreed cash contributions."