Kunal Sood, Managing Director of Defined Benefit Solutions at Standard Life, part of Phoenix Group, comments on key trends for the DB de-risking market in 2025

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2024 has been another strong year for the DB risk transfer market, with volumes expected to fall around £45bn. The market remains strong, with activity levels showing no signs of slowing down, and many of the trends we have seen this year will continue to evolve and push transaction volumes in 2025.

Scheme funding levels remained strong over the year, with many schemes closer to buy-in or buy-out than anticipated, allowing them to consider locking in these surpluses. Insurers continue to play a crucial role in providing solutions to support schemes with their de-risking objectives, and with attractive insurance pricing, BPA remains the gold-standard for many schemes.

The return of jumbo BPA transactions

Over 2024 we have seen transactions over £1bn become increasingly commonplace. Eight have been publicly announced to date in 2024, compared to six in 2021. The market has shown its maturity and significant capacity to support demand, enabling even the largest pension schemes in the UK to secure their liabilities using buy-ins and buy-outs. Larger transactions can create interesting dynamics for the market, with opportunities for schemes with nimble governance structures that are able to react quickly to an evolving and shifting landscape over time.

Evolving regulatory environment

2024 saw a raft of Government and regulatory activity relevant to the DB market, including the introduction of the DB funding code which came into force in November. This will see trustees and sponsors needing to work together to develop a formal journey plan that targets de-risking and full funding on a low-risk basis.

Funded reinsurance remains a focus within the industry. With the Prudential Regulation Authority (PRA) releasing its Supervisory Statement focused on the use of funded reinsurance, 2025 will see the launch of the next industry-wide stress test which will test these exposures as well as insurers’ resilience more generally. We have been actively engaging with the PRA through its thematic reviews and consultation process regarding the use of funded reinsurance and we fully support the core principles that have been proposed.

The Chancellor’s recently announced consultation on the new Pension Scheme Bill, which recommends a permanent legislative regime for DB superfunds, will also remain a big focus for the industry. Given the potential for pooling of assets and greater economies of scale, superfunds could be attractive particularly for schemes with weak sponsors and no realistic prospect of buying out in the insurance market. However, schemes in a strong funding position are expected to continue to value the high security that buy-out affords members. With many schemes now in a funding surplus, buy-out remains the gold standard when it comes to securing members’ benefits, particularly in a volatile economic climate.

Key factors go beyond just price

While price continues to play an important role for trustees considering their de-risking options, in light of the strong funding levels seen by schemes, we expect to see more emphasis on wider considerations beyond price as we head into 2025.

This includes ESG credentials, with climate risk an increasing focus for trustees. This is supported by our research which shows that for almost half (45%) of trustees considering an insurer for a buy-out deal, ESG is a key factor1. The industry is responding to this, and Standard Life was a founding signatory to the A4S Sustainability Principles Charter, which will continue to promote best practices within the BPA industry. In addition, cyber security is becoming an increasingly important issue for trustees and insurers need to demonstrate their robust approach, alongside any third party providers they utilise.

Technology and innovation to support market demand

Advancements in AI has also led to plenty of industry discussion on the potential benefits this may bring. As part of this, we expect a focus on technology to continue in 2025, with developments and optimised client and operational services to further improve the efficiency of processes.

While it remains early days in terms of adoption across the DB market, but it will also be interesting to see how the market responds and the extent to which AI may gradually be adopted to the benefit of schemes and their members.

Conclusion

Activity levels within the DB de-risking market are set to remain strong in 2025. Standard Life will continue to be a key player, with our focus remaining on supporting schemes on their derisking journeys and drawing on the expertise and insight of our team to help secure the very best outcome for members.

ENDS

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About Standard Life 

• Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years.
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers’ pension scheme.
• Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together.
• Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs, and plan a future they feel confident about.
• Standard Life is the proud headline sponsor of Race for Life, Cancer Research UK’s flagship fundraising event series.