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DB schemes will buy £300bn of gilts

25 August 2016

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A report from pensions specialist Hymans Robertson found demand from DB schemes to transact bulk annuity buy-ins will reach £350bn by 2026.

The findings are from the company's annual Risk Transfer Report, which looks at developments in the bulk annuity market.

Key findings also include a prediction that the demand is likely to exceed capacity in the market by £125bn.

For the report, Hymans Robertson analysed all FTSE 350 sponsored DB pension schemes, and assessed the appetite of each insurer operating in the bulk annuity market to transact.

Head of buyout solutions at Hymans Robertson, James Mullins, explains: "Our findings show that, over the medium term at least, demand from DB pension schemes to complete bulk annuity transactions is likely to exceed the capacity insurers active in this market are able to supply."

Mullins says to get a sense of the scale of the mismatch, assume a 5% increase in insurer capacity year on year, then in ten years that would equate to £225billion of supply.

"That's still a £125billion short of the total demand – even when taking a more optimistic year-on-year of 10% over the next 10 years, we'd still be looking at a £65billion shortfall."

Discussing what schemes should do, Mullin advised taking proactive steps to capture opportunities to reduce risk.

"Scheme finances have been stretched over the past decade, with the situation getting a lot worse post-Brexit.

"Rather than sitting tight and waiting for financial conditions to improve, trustees and sponsoring employers need to take proactive steps to chip away at the problem and capture opportunities to reduce risk in stages.
New recruits
Meanwhile, Hymans Robertson has made two senior appointments to its Life and Financial Services team.
John McKenzie, who was a consulting actuary and principal in Milliman's UK Life practice, joins as Head of Insurance Transfers and Reporting.

He has extensive consulting experience, has provided strategic advice across a number of corporate reorganisations, and is one of the UK's leading Independent Experts on insurance business reorganisations and Part VII transfers.

Theresa Chew joins the firm as Head of Transactions and Structuring.

In her previous consulting roles at EY, Tillinghast Towers Perrin and Deloitte, she advised on some of the largest and highest-profile M&As, IPOs and corporate restructures in the UK life insurance industry.

Theresa's role at Hymans Robertson will focus on growing its M&A advisory and transaction structuring capabilities.

First published 25.08.2018

Lindsay.sharman@wilmingtonplc.com