Global Human Resources Consulting firm Mercer forecasts that - for the first time ever - nearly one third of a trillion pounds will be paid by UK private sector defined benefit pension schemes over the three year period 2019 - 2021.
This record amount is due to large numbers of active and deferred members being expected to transfer the value of their entitlement to another arrangement, plus a rapidly growing buy-in and buy-out market where the forecast is for unprecedented premium volumes to be paid to insurers - with more than £20bn of defined benefit pension scheme obligations being insured.
Mercer expects the result of these payments to lead to private sector defined benefit pension scheme in aggregate being better funded with a lower risk profile.
Andrew Ward - Partner at Mercer - stated:
“A third of a trillion pounds is a huge sum of money and shows how the UK’s DB pension landscape is changing rapidly. In aggregate, UK company DB schemes are expected to be better funded and bear less risk in three years’ time. There are headwinds, not least the potential for Brexit to disrupt the landscape, but the direction of travel is clear.
As the UK DB landscape further matures, there is potential for an emerging DB Consolidator market. How this will impact the amount paid by DB schemes depends on how the new offerings are received by scheme sponsors and trustees. The recent consultation announced by the Department of Work and Pensions and the Pensions Regulator’s guidance will propel discussion in this area.”
Mercer Partner - David Ellis - commented:
“Better funded and increasingly mature pension schemes have taken advantage of excellent pricing from insurers in 2018. Mercer expects the buy-in and buy-out market to smash the record again in 2019 as well-organised schemes take advantage of attractive pricing from insurers. Overall, Mercer forecasts DB schemes will pay around £90bn in premiums to insurers over the next three years.”
Mercer also highlighted how aggregate transfer values of around £20bn for the whole of 2018, based on data for the first three quarters, will be far more than the £3bn annual average.
