The recently launched 2014 Bulk Annuity Market Insights report by KPMG, predicts the pensions insurance buyout market will more than double by 2020.
The UK pensions insurance buyout market is set to grow significantly in the next five years reaching £20bn per annum by 2020, according to a new report by professional services firm, KPMG. This is set to create significant opportunities for insurers to write significantly higher business volumes and for trustees to de-risk.
A pension buyout or buy-in, also known as a bulk annuity transaction, occurs when an insurer takes over responsibility from the trustees and sponsor of a pension fund for meeting the scheme’s liabilities. The benefits to trustees include a reduction of risk, potentially reduced cost and greater scheme security. Members will continue to receive benefits to which they are entitled.
According to KPMG’s 2014 Bulk Annuity Market Insights report, until very recently, the market has been relatively stable with volumes fluctuating between £5bn and £8bn since 2007. However, due to a number of market-driven factors and recent developments, principally this year’s annuity reform, the market for insurance buyouts is set for a significant boost. KPMG predicts that the market will hit £20bn per annum by 2020.
Tom Seecharan, director, pensions insurance at KPMG in the UK explained, “Ultimately the demand for bulk annuities is being driven by defined benefit schemes continuing to mature and a greater understanding of insurance transactions.
“The supply of insurance providers is increasing as both new entrants and existing insurers seek to write more business following this year’s Budget’s annuity reforms. We envisage that these market conditions will drive year-on-year increases in buyout volumes”.
Another KPMG report, Understanding Your De-Risking Options also highlights that there are a large number of ways for pensions schemes to insure and suggests that the appetite will come from reinsurers as well as the traditional providers.
Paul Cuff, partner, pensions insurance at KPMG in the UK said, “We are seeing an increasing number of insurers seeking to write larger business volumes and positioning products aimed at making insurance more accessible and affordable to pension schemes of all sizes.
“However, as buy-out deals are irreversible commercial transactions concerning significant amounts of money, trustees and sponsors must ensure both the structure and timing of the transaction is right. Trustees and sponsors considering a buy-out as part of their de-risking strategy should conduct a feasibility study to identify the optimum insurance solutions available in the market in the context of the scheme’s circumstances.”
Notes to editors:
Both reports available upon request.
Simon Chan, PR Assistant Manager, KPMG
T: +44 (0) 207 694 2024
M: +44 (0) 7747 564 737
KPMG Press office: +44 (0) 207 694 8773
Follow us on twitter: @kpmguk
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.