The number of DB pension scheme trustees targeting a buyout with an insurer has increased significantly in the past five years, latest research from Willis Towers Watson shows.
The consultant's end game research - which polled over 150 trustees and scheme managers in April - found a third (32%) of schemes are targeting buyout outright, with a further 5% aiming to run the scheme off over time with a buyout-like level of funding.
In comparison, in 2013 only 11% reported a buyout as their target.
Willis Towers Watson senior director of transactions Shelly Beard said: "Some schemes will be closer to buyout than they think. For example, because insurance pricing can be keener than the actuary's solvency valuation, or because insurers' life expectancy assumptions have softened since the last actuarial valuation.
"We have recently seen some of the most competitive buy-in and buyout pricing for a decade, particularly for pensioners. Alongside this, the growing demand from members for DB transfers can cut the cost to the employer of getting the remaining non-pensioner liabilities off its books. Finally, as more members retire and move to pensioner status, the buyout cost for them reduces."
Beard added: "Over time, increased demand for securing liabilities will require an increase in supply. Perhaps the biggest question mark concerns the availability of long-term assets carrying an illiquidity premium. Typically, these account for 30% to 40% of the investments a buy-in provider makes to back the pension commitments it takes on. If supply does not keep pace with demand, prices could worsen slightly."
Willis Towers Watson also said long-term journey planning is the most commonly cited priority both for trustees and scheme sponsors - with 63% of trustees and 68% of pension managers listing it among the three most important issues for them over the next three years.
The research comes after separate analyses by Lane Clark & Peacock (LCP) and Willis Towers Watson found the bulk annuity market had had a record breaking first half - with around £8bn of buy-ins and buyouts completed in the first half of this year, the highest volume of deals of any first half to date.
Longevity risk transfers also broke records in the first half. Thanks to the £2bn longevity swap between National Grid and Zurich and the £12bn back-book transfer from Prudential to Rothesay Life, the previous £11.9bn record, also set in H1 2014, was beaten.
The Smiths Industries Pension Scheme has secured a £146m buy-in with Canada Life in its fourth bulk annuity and its sponsor’s tenth overall.
The Prudential Staff Pension Scheme has entered into a £3.7bn longevity swap with Pacific Life Re, insuring the longevity risk of over 20,000 pensioners.
The Baker Hughes (UK) Pension Plan has secured approximately £100m of liabilities through a buy-in with Just Group.
There have now been a total of 30 longevity swaps over £1bn publicly announced. The full list, provided by Willis Towers Watson and through PP research, is as follows...
The Reckitt Benckiser Pension Fund has secured a £415m buy-in with Scottish Widows, insuring the benefits of around half of pensioners.