Pensions benefit from buy-ins and buyouts.
THE estimated average size of pension scheme buy-ins and buyouts in the UK increased from PS114m in 2010 to PS262m in 2015, says Mercer.
The change represents an increase of 2.3 times over the six years and highlights that UK pension plans of increasingly larger size are turning to pension buy-ins and buyouts to manage defined benefit pension risk.
Mercer's analysis also shows that the UK market in pension buy-ins and buyouts continues to show resilience to market volatility with the number of transactions holding steady at broadly 150 to 200 in each of the past six years.
Moreover, aggregate annual premiums paid in respect of smaller transactions (up to PS50m each in size) and medium-sized transactions (between PS50m and PS500m) have stayed at the same levels from year to year, at around PS1.5bn and PS4bn respectively. While the size of the market overall has varied from year to year, most of this variation has come from the larger deals, above PS500m each.
Mercer's UK leader of its bulk pensions insurance advisory team, David Ellis, said: "We have adjusted our analysis to exclude smaller transactions below PS50m and a handful of much larger transactions, to avoid distorting the statistics, but an increase of over two times highlights the stunning growth in the average size of transactions in the core part of the market.
"It's also interesting to see the UK bulk annuity market's resilience to the recent falls in yields. "Each year, despite varying financial conditions, broadly 150 to 200 sponsoring employers, trustees and their advisers conclude that a buy-in or buyout is the best way to manage at least some of their defined benefit pension obligations in the UK.
"The decision to purchase annuities costing several hundred million pounds is always material and yet the trend for larger plans to purchase bulk annuities evidences the suitability and credibility of buy-ins and buyouts for managing, and in many cases finally resolving, defined benefit pension risk."
Mercer also notes that 2015 is the second-largest year on record in the UK pension buy-in and buyout market, with pension plans transferring economic responsibility for PS12.3bn of defined benefit pension obligations to insurers.
The largest year on record is 2014, when PS13.2bn of UK pension obligations was transferred to insurers. Over the past 10 years, premiums for buy-in and buyouts totalling PS64bn have been paid to UK insurers.