UK company pension schemes have transferred the defined benefit (DB) pension risks of more than one million people to insurers, according to research by pension consultants LCP.

LCP says this has been achieved by UK company schemes transferring £70bn of assets to insurers in the past 10 years, around five per cent of the c£1,500bn of total DB pension assets.

The trend for pension scheme insuring their obligations via a bulk annuity contract began around ten years ago, as trustees sought to reduce risk as their membership got closer to retirement,

Charlie Finch, partner at LCP, said: "The move to insuring the liabilities of pension schemes has been a quiet revolution over the last decade as pension scheme trustees have taken action to reduce risk and improve benefit security."

"Pension scheme members see no change in the amount of their pension benefits, as a result of a buy-in or buy-out, though may be reassured to know that their retirement income is now backed by a regulated insurance company subject to strict capital requirements rather than simply relying on their former employer to fund their pension."

According to LCP's latest pensions de-risking report on the buy-in, buy-out and longevity swaps market in the UK, 2017 will be a bumper year for buy-in and buy-outs of UK pensions schemes.

LCP predicts volumes will top £15bn for the first time, exceeding the record set in 2014 on £13.4bn and a fifteen-fold increase on the c£1bn of annual volumes 10 years ago.

"The appetite for pension schemes to de-risk via buy-ins and buy-outs has grown phenomenally over the past 10 years," Finch said, "Many schemes have self-sufficiency or buy-out as their ultimate target and series of well-timed buy-ins can be an effective way of getting there.

"For example, following the Brexit vote in June there was a short-lived opportunity for fast-moving pension schemes to purchase buy-ins at a reduced cost."

LCP estimates volumes for 2016 will be around £9bn for buy-ins and buy-outs with £1.6bn of longevity swaps reported to date.

First published 15.12.2016

Lindsay.sharman@wilmingtonplc.com