Rising UK corporate pension funding levels are expected to boost de-risking activity in 2023, but demand for buyouts and purchases is likely to be too strong for the insurance industry to accommodate any the world.
The overall defined benefit pension surplus of the UK’s 350 largest listed companies more than quadrupled in August to £9bn ($10.3bn) from £2bn at the end of July, according to the consulting firm Mercer. Liabilities fell to £657bn at the end of August from £709bn on July 29. A Mercer press release attributes the improvement in funding to rising corporate bond yields, which it said was offset by an uptick in the market’s view of the future. inflation. Asset values also fell to £666bn from £711bn.
“We expect this to drive demand from pension schemes looking to reduce risk next year,” Charlie Finch, partner at London-based law firm Lane Clark & Peacock, said in a statement. However, he added that “the challenge is that insurers simply do not have the resources to quote all the opportunities that might arise in the market.”
Finch said the plans that are successful in signing contracts with insurers will be plans that “have invested in preparing the cleanse data, developing detailed benefit specifications, preparing their investment transaction, and putting in place appropriate governance arrangements with the sponsor”. He added that “such preparation will bear fruit in the years to come”.
An analysis of insurer results by Lane Clark & Peacock in the first half of 2022 shows the UK pension risk transfer market has gotten off to a good start this year with £12bn of redemptions and purchases. This is the third largest first half in history, and an increase of more than 50% on the first half of 2021, when there were £7.8bn of redemptions and purchases.
The largest buyout in the first half of the year was a £2.3bn takeover by the British Steel Pension Scheme with Legal & General, followed by a total buyout of £1.1bn sterling by DHS 1994 Pension Plan with PIC; and a £1.0 billion total takeover by WH Smith with Standard Life. There were five other deals worth over £500m in the first six months of the year.
“Activity was driven by increased pension funding positions following the largest long-term interest rate hike this century,” Finch said, noting that gilt yields at age 20 have more than tripled to 3.7% per year since inception. of the year.
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Tags: buy-in, buy-out, Charlie Finch, Corporate Pension, de-risk, funding level, Lane Clark & Peacock, Mercer, Pension Fund, Pension Risk Transfer, UK