Record levels of transactions in the U.K. and U.S. pension risk transfer markets in 2022 are carrying into the first half of 2023, according to a new report by the Legal & General Group.
In the U.K., the report found an unprecedented acceleration in demand, driven by more defined benefit pension plans being closer to buyout than ever before. It also noted the market reached an all-time first-half-of-the-year high in 2023.
The increase in demand is across pension plans of all sizes, but the real rise is in transactions above £1 billion. Around 20 of these large transactions have already been quoted on in 2023 with six announced in the year to date, including the British Steel Pension Scheme’s fourth buy-in with Legal & General for £2.7 billion.
In the U.S., the pension risk transfer market also appears to be poised to set another record, according to the report, with an estimated US$22 billion in total transaction volume through June, exceeding the mark set last spring by 31 per cent — or more than $4 billion. That volume is substantially higher than the $8.7 billion in transactions the U.S. market saw in the first half of 2021.
The report noted the key contributors to this momentum include: a surge in average premium per transaction, rising from $55 million in 2018 to roughly $90 million in 2022 — a 62 per cent increase over five years; a rise in the number of closed pension risk transfer transactions, increasing 31 per cent between 2020 and 2022; pension funding ratios now standing at 103.5 per cent through June, having risen steadily from 99.8 per cent in January; and four transactions exceeding $1 billion, including AT&T Inc., which settled $8.1 billion in liabilities in the second quarter of the year.
“This is one of the most vibrant PRT markets I’ve experienced in the U.S.,” said George Palms, president of Legal & General Retirement America, in a press release. “Improved funding ratios once again have plan sponsors considering PRTs as a smart way to ensure pensioners’ long-term financial security while simultaneously reducing risk to the balance sheet.”