LONDON (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 (LON:AV) 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 (LON:RR) 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.