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Nearly two thirds (64%) of the UK’s largest pension schemes plan to use insurance de-risking solutions according to new research by Legal & General

Tom Ground

A new report, De-risking journeys of large pension schemes, which surveyed over 40 of the UK’s largest private sector pension schemes, each with over £1billion in pension fund assets, shows that:

  • Nearly two-thirds, (64%) are looking to arrange some form of insurance de-risking solution to cover their liabilities, rather than retain and manage the risk themselves;
  • Nearly half, (47%) of interested schemes said that they were looking to arrange buy-ins or buyouts in the next 5 years; and
  • Over two thirds, (67%) of schemes interested in longevity insurance, were looking to implement a solution in the next 5 years.

The UK’s larger pension schemes are becoming a dominate force in the insurance de-risking market with the large scheme arrangements completed in the market over the past five years representing three quarters,(75%) of the total of £80bn of insurance arrangements completed.

Tom Ground, Head of Bulk Annuities and Longevity Insurance, at Legal & General said: “The De-risking journeys of large pension schemes report shows that almost two thirds, (64%) of large pension schemes are looking to insure their liabilities. However, it also shows that all stakeholders need to work together to overcome barriers and achieve successful outcomes. It’s all about certainty. The good news is that insurance and investment solutions now let pension schemes achieve this.

“2014 saw deficits of private sector schemes increase by over £100bn – more than double the annual UK corporation tax bill*. In reaction to market volatility 2014 saw large schemes execute a series of landmark arrangements including the largest buy-in, the largest buyout and the largest longevity hedging arrangement. These arrangements covered over £21bn of pension scheme liability.”

The research, which was commissioned by Legal & General with Engaged Investor, asked the UK’s largest private pension schemes about their long term de-risking objectives and the barriers that they believe may prevent them from achieving their aims.

Based on the information in the 2014 Pension Protection Fund Purple Book, Legal & General’s Bulk Annuities and Longevity Insurance team, estimate that there is around £1trillon of liabilities and £0.7trillon of assets held by the £1billion plus UK pension schemes. The pension fund assets of the larger schemes surveyed as part of this Report, represent over £150 billion of pension fund assets and an estimated £200 billion of buyout liabilities.

The increased demand for insurance de-risking from the UK’s largest pension schemes is clearly evidenced by the transactions completed by the ICI Pension Fund, for £3 billion and the TRW Pension Scheme for £2.5 billion, last year. Larger schemes have historically paved the way in the UK Defined Benefit, (DB) pensions market, particularly on investment strategies, with similar approaches then being adopted across the rest of the market. So the research findings are important in understanding the objectives of the larger schemes and what is driving their journeys, in providing valuable insight across the rest of the DB market.

For example, over two thirds,(69%) of the large schemes surveyed said that liability management was an important factor in achieving their long term de-risking goals and two thirds, (67%) have already implemented liability driven investment strategies, with the rest planning to do so.

Aaron Meder, Head of Investment, Legal & General Investment Management said: “Many of our larger pension scheme clients are thinking about the next step in their liability driven investment strategy and their ultimate objective of paying pensions over the long term. Increasingly, schemes are looking to the insurance industry, either as a counterparty to transfer risk to, or as an indicator of how to manage a low risk, cash flow driven investment strategy, that generates return in excess of the liabilities and so enables them to make the pensions payments required over time.”

Other key findings in the De-risking journeys of large pension schemes report include:

  • That affordability is the main barrier preventing large schemes from achieving their long term objectives.
  • Of the two thirds of the large schemes, (64%) who were planning on implementing insurance as part of their de-risking strategy, over half, (53%) are still yet to approach the market.
  • Nearly half of large schemes interested in bulk annuities, (47%) said that they would look to insure within the next five years and almost a fifth, (18%) are looking to implement a bulk annuity in the next three years.
  • Financial strength was rated as the most important factor by large schemes when selecting an insurance provider. This was ranked higher than price, which was second in the rankings.
  • Nearly two thirds, (63%) of larger schemes surveyed said that arranging insurance cover would be carried out as joint exercises between the trustees and sponsoring employers.
  • Almost three quarters, (69%) of large schemes said liability management was important or very important in meeting their de-risking objectives.
  • 40% of large schemes surveyed planned to carry out a trivial commutation exercise in light of the additional flexibilities provided by the 2014 Budget changes.
  • Investment risk was rated as the most important risk factor facing pension schemes. Longevity risk was second in the rankings. 
  • Over two thirds (67%) of larger schemes had implemented Liability Driven Investment strategies, (LDI) and a further 10% expected to implement this strategy in the next three years.

Corporates, trustees or advisers looking for further information on the de-risking solutions available to large and smaller pension schemes, should call Legal & General’s Bulk Annuity and Longevity Insurance team on 020 3124 2994. Those looking for more information on investment de-risking strategies should contact Aaron Meder on 020 3124 3099.

A copy of the report, De-Risking journeys of larger pension schemes is available to download here, or at or by contacting the usual Legal & General contact.


Source: The Guardian shows that Corporation Tax receipts to exchequer were £41bn in 2014 and private pension scheme deficits increased by more than double this amount to more than £100bn (Source: Fi