This has proved to be a record-breaking year for pension risk transactions in the U.K., a development that some experts are viewing as the beginning of a trend. Spurred by three companies that recently unloaded a combined £5.3 billion ($8.7 billion) in longevity risk from their pension funds, the total volume of pension risk transactions, which include longevity swaps and bulk annuity arrangements, in the U.K. to a record £16 billion for 2013. The previous record was £12 billion in 2011; since 2008, the yearly average had been about £8 billion.
Experts think the trend will continue into 2014 as risk transfer deals move into the mainstream, and expect to see new types of deals involving small and midsize funds. “We are expecting the market to continue to develop — on the supply side we expect more simplified longevity swaps,” says Suthan Rajagopalan, DB plan risk transfer expert at Mercer. “At the moment the majority have been quite complex transactions with very large schemes involving security structures such as collateral. We are expecting more simplified, uncollateralized transactions, more akin to pensioner buy-ins. That is more accessible for small and medium schemes.”
