Bulk annuity activity at record levels as schemes’ funding improvements continue

Bulk annuity activity at record levels as schemes’ funding improvements continue

05 Sep 2023

• XPS Pensions Group estimates that the aggregate surplus of UK pension schemes now stands at approximately £158bn, up £4bn since last month.
• A rise in long-term gilt yields of around 0.2% led to a decrease in the value of liabilities, improving scheme funding levels.
• However, aggregate scheme assets were also down over the month driven by schemes’ hedging strategies.
• XPS Pensions Group estimates that bulk annuity volumes to exceed £50bn for 2023.

Overall, across August 2023, UK pension schemes’ funding positions have risen by c.£4bn against long-term funding targets. Based on assets of £1,421bn and liabilities of £1,263bn, the aggregate funding level of UK pension schemes on a long-term target basis was 113% as of 30 August 2023.

Stephen Purves, Head of XPS Pension Group Risk Settlement said: “With DB funding positions so strong, it’s no surprise that this year has seen record activity in the bulk annuity market. Around £21bn of new business has been written already, and it looks almost certain that 2023 will be the market’s busiest year on record, with deal volumes likely to reach £50bn for the year. That would surpass the previous record of £44bn from 2019.

Most of the insurers now have higher targets and increased capacity levels and as a result we are aware of a number of new entrants seriously looking to enter the market next year. XPS clients are still accessing good levels of engagement and pricing by having a clear strategy and undertaking detailed preparatory work at the right time.”

Notes:

XPS DB:UK tracks the funding position of UK defined benefit (DB) pension schemes on a long-term target basis and allows real time monitoring of changes and analysis of the reasons behind any movement.

XPS DB:UK Funding Watch monitors the combined deficit and funding level of UK defined benefit (DB) pension schemes (i.e. all registrable schemes - including hybrids) on a long-term target basis using a discount rate of Gilts + 0.5%. It combines XPS’s market leading Member Analytics and the award-winning journey planning tool, Radar, enabling real time monitoring of changes and analysis of the reasons behind any movement.

An online version of XPS DB:UK is available here:https://www.xpsgroup.com/services/xps-pensions/xps-dbuk-funding-watch/