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LONDON, Dec 10 (Reuters) - The market for insuring British
defined benefit, or final salary pension schemes may reach
record levels next year, consultants Mercer said on Thursday, as
more firms seek to remove this risk from their balance sheets.
Around two trillion pounds ($2.68 trillion) is tied up in
such schemes, which guarantee a set annual income to pensioners
and are expensive and risky to manage.
Most are closed to new members, as companies switch instead
to schemes which invest to build up a pension pot which
employees can access at retirement.
Insurers including FTSE 100 firms Legal & General,
Phoenix and Aviva took on around 30 billion
pounds of defined benefit pension risk this year in the
so-called bulk annuity market, Mercer said.
This followed a record year for the market last year
totalling 43.5 billion pounds, said Andrew Ward, UK head of risk
transfer at Mercer, driven by some multi-billion pound deals.
"I think we'll be towards that sort of level in 2021," he
said.
Rolls-Royce and Marks & Spencer are among high-profile
employers to make use of the bulk annuity market in recent
years, and the sector is making an increasing contribution to
life insurers' profits.
The coronavirus pandemic has exacerbated concerns about
employers' ability to support their defined benefit pension
schemes, following the collapse of companies such as Arcadia.
"In a year like never before, risk transfer has remained
high on the agenda," Ward said.
Some employers are also making use of longevity swaps -
offloading the risk that their pension policyholders live longer
than expected.
The total market for bulk annuities, longevity swaps and new
types of pension risk transfer is likely to total a record 60
billion pounds next year, Mercer said.
($1 = 0.7451 pounds)
(Reporting by Carolyn Cohn; Editing by Kirsten Donovan)
