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De-risking report 2021

Keep calm and carry on de-risking

Pensions Corporate Consulting|Pensions Risk Solutions|Pension Board and Trustee Consulting|Pensions Technology

By Ian Aley | January 19, 2021

Welcome to Willis Towers Watson’s 2021 de-risking report in which our experts look at the current hot topics and key themes in the bulk annuity, longevity hedging and superfunds markets and predict what trends may emerge in this market over the next year.

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Our Credentials

In 2020 Willis Towers Watson was lead adviser to:

  • 20 buy-ins for 19 schemes covering £8.6bn of liabilities
  • Three £1bn+ buy-ins
  • Twelve £100m+ buy-ins
  • Five longevity swaps covering £14.7bn of liabilities
  • Deals with all eight insurers
  • Over £23bn of completed deals

2020 was another incredibly busy year in the bulk annuity and longevity hedging markets. We were delighted to lead transactions for clients of all sizes, ranging from the £2.5m PPF+ buyout for the BHS Senior Management Scheme (which you can read more about in chapter one: Looking back at the 2020 de-risking market in the UK) to the largest transactions of 2020 with both a £3.3bn confidential buy-in (the market’s largest bulk annuity) and £10bn of longevity swaps for the Lloyds Banking Group pension schemes (the market’s largest longevity swap). Overall, we led 25 deals covering more than £23bn of liabilities.

The top three trends in the de-risking market for 2020

Ian Aley and Uzma Nazir, Head of Structuring at Pension Insurance Corporation, debate what the top three trends in the market were and share some memories from 2020.

As well as hearing from our experts in our report, in early December 2020 we filmed a discussion with Uzma Nazir, Head of Structuring at Pension Insurance Corporation (PIC), in which we debated what the top three trends in the market were, as well as sharing some of our memories from 2020. I hope you find this an interesting overview of the key issues in the market.

In our discussion, Uzma and I concluded that our top three trends in the market for 2020 were:

  • COVID-19 – We couldn’t not mention the on-going pandemic in our key themes. In spite of the pandemic, 2020 was the second biggest year on record in the bulk annuity market and the pricing achieved on deals was some of the most attractive ever seen in this market. Uzma and I agreed that COVID-19 hadn’t had a significant impact on the total volumes written in 2020 but the longer-term impact of COVID-19 on longevity pricing is still unclear and so will be one of the key points to watch in 2021 and beyond.
  • Transaction sizes – We haven’t seen the repeat of the mega-deals of 2019 but we are continuing to see large transactions in this market, with five schemes completing bulk annuities over £1bn in 2020, including three that were led by Willis Towers Watson. Further, Uzma commented that, from PIC’s perspective, £500m deals are coming to be seen as “medium-sized” deals.
  • PPF+ buyouts – There have been several examples this year, including the Old British Steel Pension Scheme, where, following sponsor insolvency, schemes have managed to insure benefits for members in excess of the level of compensation that would be provided by the Pension Protection Fund (PPF). In a continuingly challenging environment for many sponsors, this is a theme that we (unfortunately) expect to continue.

These trends and other topical articles, including those that didn’t quite make our top three trends, on schemes with a surplus on buyout and Third Party Capital Solutions, are commented on further in the remainder of our report.

We would welcome the chance to discuss further with you how you can take advantage of opportunities in this market for your scheme.


Table of Contents

  1. 01

    Chapter One - Looking back at the 2020 UK de-risking market

    Jenny Neale | January 19, 2021

    Despite the challenges of the year, the high level of bulk annuity and longevity hedging activity seen in the last few years continued in 2020, with over £50bn of liabilities transferred to the insurance sector.

  2. 02

    Chapter Two - COVID-19 and the longevity hedging market

    Sadie Scaife | January 19, 2021

    COVID-19 impacted every aspect of our lives in 2020. Sadie Scaife considers how the longevity hedging markets were affected and what the longer-term impacts may be.

  3. 03

    Chapter Three - Memories from Lockdown 1.0

    January 19, 2021

    On 23 March 2020, the UK announced it was going into lockdown, thrusting us into a new way of working overnight. As a team and as an industry we had to adapt to a virtual working environment and some new challenges this introduced. We feature some of our team members’ memories from this period, including a few of the funny moments!

  4. 04

    Chapter Four - Integrating management of longevity risk within the investment strategy

    Suzanne Vaughan | January 19, 2021

    Hedging a scheme’s other liability risks (interest rates, inflation and currency) first and leaving management of longevity risk to the end of the journey plan can expose the scheme to considerable market risk, potentially increasing the overall costs should the cost of longevity hedging increase over time as capacity is used. Suzanne Vaughan considers how longevity risk can be integrated within the wider investment strategy risk framework.

  5. 05

    Chapter Five - Innovation in the UK de-risking markets

    Katherine Gilder | January 19, 2021

    Since our team was involved in the first buy-ins in 1999 and the first longevity swaps in 2009, the UK de-risking market has greatly developed. Katherine Gilder reflects on the evolution of the market and speculates on where we might see future innovation.

  6. 06

    Chapter Six - Pension scheme surplus on buyout

    Costas Yiasoumi | January 19, 2021

    The number of pension schemes with buyout surpluses or close to having a buyout surplus has more than tripled over the last five years. Whilst a surplus is a nice problem to have, Costas Yiasoumi considers the additional issues and considerations when it comes to transacting a bulk annuity for such schemes.

  7. 07

    Chapter Seven - Spotlight on bulk annuity insurers and ESG

    Hazel Kendrick | January 19, 2021

    We know with certainty that society is facing big changes in the future, and one of these is climate change. Whilst ESG is much broader than climate change, over 2020 barely a day went by when climate change wasn’t in the news, and actions being taken by bulk annuity providers are dominated by an environmental focus. Hazel Kendrick considers what changes we are seeing in the pensions industry and in particular shares the results of our latest ESG survey of UK bulk annuity providers carried out in Autumn 2020.

  8. 08

    Chapter Eight - New kids on the block – a look at Third Party Capital Solutions

    Will Griffiths and Tom Ashworth | January 19, 2021

    2020 was another breakthrough year in pensions, where we saw the first arrangement in which third party capital was provided directly to help a pension scheme support its journey to buyout. In this article Will Griffiths and Tom Ashworth explore Third Party Capital Solutions (TPCSs), looking at how these may be used to benefit both pension schemes and their sponsors.

  9. 09

    Chapter Nine - Predictions for the 2021 UK de-risking market

    Louise Nash and Matt Wiberg | January 19, 2021

    Louise Nash and Matt Wiberg share their predictions on what we might see over the next year in the buoyant de-risking markets.


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