17 December 2018
“Mercer forecasts that, for the first time ever, nearly one third of a trillion pounds will be paid by UK private sector defined benefit (DB) pension schemes over a three-year period, from 2019 – 2021. The record amount is due to large numbers of active and deferred members expected to transfer the value of their entitlement to another arrangement; and a rapidly growing buy-in and buy-out market, where the forecast is for unprecedented premium volumes to be paid to insurers. Mercer expects the result of these payments to lead to private sector DB schemes in aggregate being better funded with a lower risk profile.
Andrew Ward, Partner at Mercer, commented “A third of a trillion pounds is a huge sum of money and shows how the UK’s DB pension landscape is changing rapidly. In aggregate, UK company DB schemes are expected to be better funded and bear less risk in three years’ time. There are headwinds, not least the potential for Brexit to disrupt the landscape, but the direction of travel is clear.
As the UK DB landscape further matures, there is potential for an emerging DB Consolidator market. How this will impact the amount paid by DB schemes depends on how the new offerings are received by scheme sponsors and trustees. The recent consultation announced by the Department of Work and Pensions and the Pensions Regulator’s guidance will propel discussion in this area.”
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