2024 will almost certainly be a record year for premium volumes, but also the number of transactions. We might even have an insurer complete more than 100 transactions in a calendar year – another first if it happens. Most of the transactions in the market this year have been for smaller schemes, with sub £100m of assets, it is so pleasing to see the small scheme market end 2024 stronger than we’ve seen it in some time.

I think this also debunks a myth around the attractiveness of small schemes for insurers. Small schemes do attract insurer interest, running exclusive processes is not a must and pricing is most certainly not hardening for smaller schemes, if anything quite the opposite. Some recent examples we’ve seen include:

Another current myth is that the market has been closed for a while due to insurers having already filled their books for the year. Not so, we saw good appetite throughout the year and actually have attracted competitive processes and keen pricing in the last few weeks.

A big story of this year has been a big wave of new entrant insurers (not necessarily new insurers, but just new to bulk annuities). This new wave being driven by the significant shift we saw over 2023 in scheme funding and hence an expectation, which has proven to be true, of increased demand from pension schemes. We were pleased to work on the first two external transactions with Royal London this year and we saw Isio announce the first transaction with Utmost very recently. Brookfield have recently announced they intend to enter the market in early 2025. And there are whisperings of more. This is good news for the market, with increased capital and capacity but also, and just as importantly, new ideas and offerings that will appeal to some schemes – competition drives innovation.

Several insurers have developed their small scheme offerings, and this is enabling them to quote more efficiently, providing more options and capacity for schemes to get quotations. Not everything is perfect on this front yet. The development of insurer specific templates which are quite different increases the work and risk on the Trustee side. We’ve also seen a trend from brokers expecting already overstretched administration teams to take responsibility for filling in these templates, which leads to delays, and again introduces additional risk. Both of these trends will need to be reviewed and revised over 2025, as they are solvable and it’s in everyone’s best interest to address them.

There is no doubt administration capacity is probably the issue of the moment, and only likely to get harder in the short term, and that is both scheme side and insurer side. Because of it, we hear of schemes not having an ideal experience during the phase between buy-in to buy-out. However, with proactive and experienced project support this phase can be dealt with efficiently, although it’s important to set expectations, in particular with sponsoring employers, as to the likely timescales for this phase. It’s been interesting to see a couple of the new entrants adopt the in-house administration route rather than a third-party administrator, and it will be interesting to see how that plays out as they take on schemes, and whether it could be a differentiator.

Now, risk transfer isn’t all about insurance. In Q1 2024 Clara announced their second transaction (Debenhams), which was not long after their first transaction with Sears in late 2023. Since then, there haven’t been any new announcements, but I’m fairly confident we’ll hear more from them as we head into 2025 - what will be interesting is when they announce a transaction with a solvent employer! This may encourage the launch of other superfund consolidation vehicles, as it’s not ideal for there to be the only one option in the market.

On the topic of consolidators, 2025 may see news on whether the public sector consolidator will get the green light to develop further.

Of course, there is now a very active debate in the industry on run-on versus buy-out. There is conflict everywhere in that debate which is often masked behind poorly constructed arguments. Personally, I think material changes are needed in order to make it effective for the vast majority of schemes to seriously consider run-on. I’ve seen lots of surveys, but I think the hardest sell for this will be with smaller scheme sponsors who, in the main, appear to be fed up with DB pensions. Schemes were originally designed as a benefit for current employees, but in most cases, this is no longer the reality. It’s somewhat unrealistic for businesses to strategically want to take on the role of professional pension scheme managers indefinitely, in addition to running their core operations. But debate is healthy and also leads to innovation so we should welcome continued discussions.

I for one am excited to see what 2025 has in store!

Adam Davis – Managing Director, K3