Governance Financial Statements
Strategic Report
11
In 2025, we expect the government’s new Pension Bill will introduce legislation for the so called superfund regime, replacing the pension regulator’s temporary regime. In addition to the technical matters of how superfund schemes will be governed, we expect the legislation will make clear which DB pension schemes would be allowed to consolidate through these arrangements. A very small number of transactions have been announced under the temporary regime. In April, the Department for Work and Pensions (“DWP") closed a consultation on legislative changes to introduce greater flexibility to access surplus funds in DB pension schemes. It also consulted on establishing a public sector consolidator administered by the Pension Protection Fund, for DB pension schemes that were unattractive to commercial consolidation providers. We and others in the industry have responded to the consultation and maintain an open, constructive dialogue with government and officials. 2024 was a very strong year for the value and volume of insurance consolidation with £47bn of deals completed (source: Association of British Insurers (“ABI”)). Just Group estimates that approximately 280 transactions were concluded, setting a new record for the industry. There is a vibrant insurance de-risking market for DB pension schemes of all sizes. As expected, three new participants entered, and completed transactions in the DB market – Royal London, M&G and Utmost. Scottish Widows exited, which resulted in there being 10 active insurers competing for business at the end of 2024. There is speculation other new entrants could emerge in 2025. New regulations for climate reporting introduced in The Pensions Schemes Act 2021, have led to more trustees considering de-risking to seek assurance that ESG considerations underpin the asset choices in insurers’ investment portfolios. In 2023, the Church of England and Railpen Pension Schemes spearheaded an initiative to integrate ESG principles into the selection of insurers during bulk annuity processes. This initiative resulted in the creation of the ‘Sustainable Principles Charter for the Bulk Annuity Process’. Guided by the organisation ‘Accounting for Sustainability’, Just Group is proud to have been a founding partner for the Charter. This puts bulk annuity providers ESG credentials on a comparable basis, helping schemes approaching buy-out to make a well informed and ESG based selection of their preferred provider. We welcome innovative solutions to the market, but irrespective, we believe the scale of the market and strength of demand for ‘gold standard’ insurance solutions will mean that trustees and their consultants will continue to prioritise the insurer pathway where possible. OUTLOOK In conclusion, the structural growth drivers for the DB de-risking market remain intact and the outlook for the next decade is strong. The increase in gilt yields since 2022 has reduced the estimated liabilities of defined benefit pension schemes and dramatically improved funding levels. The strong demand in the insurance de-risking market is predicted to continue over the decade to 2033, with commentators predicting up to £600bn (source: LCP) could be transferred to insurers during this period. There is a vibrant market for schemes of all sizes and insurance capacity has kept pace with demand. As transaction volumes continue to increase, pressure on scarce human resources may be felt across the wider ecosystem. When selecting new business, insurers will prioritise pension schemes that have their governance, data and benefit specifications in good order. Just Group is continuing to invest in its proposition, resources and service to ensure that schemes we work with can realise their de-risking ambition and provide the best member outcomes and experience.
96% of defined benefit pension schemes are closed to new members and increasingly to future accrual (%)
2023 2024
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0
20
40
60
80
100
Closed to new members (open to benefit accrual) Closed to future accrual Source: The Purple Book 2024, PPF
Expected growth in DB de-risking transactions (£bn)
2024
2022 2023
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
0
10
20
30
40
50
60
Buy–in/Buy-out
Backbook acquisition
Source: Just analysis, LCP 2024, ABI
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