Aon expects continued growth and innovation for UK bulk annuity market in 2025

Global insurance and reinsurance broking group Aon anticipates continued growth and innovation in the bulk annuity market in 2025, as demand from UK pension schemes remains strong.

The total volume of bulk annuity deals completed in the UK in 2024 is expected to range from £45 billion to £50 billion.

Improved funding levels in pension schemes, largely driven by higher yields, have led to increased demand for de-risking using insurance across schemes of all sizes. In response, the insurance market has introduced new innovations and participants, with further developments expected.

Mike Edwards, partner in Aon’s UK risk settlement team, commented, “Over the course of last year, there were various market changes that benefited smaller to mid-sized schemes, dispelling any myths that the market was only open to mega schemes. New market entrants, including Royal London and Utmost, completed their first deals below £100 million, while most of the established participants expanded their offerings at the smaller end of the market to give a better service via streamlined processes.

“Aon led the advice on transactions under £100 million in size with six different insurers in 2024, showing clear evidence of the level of competition going into this year. We also expect at least one more new market entrant, with Brookfield currently seeking regulatory approvals.

“At the larger end of the market, deals over £1 billion have become ‘business as usual’, with size no longer viewed by insurers as a particular challenge. This demonstrates both the maturity of the market and the availability of capital to support continued growth. Even so, large schemes often bring unique structuring challenges. We worked with several insurers over the last year – including on the £1.4 billion Sanofi transaction announced today – to develop innovative solutions to meet these challenges. This included issues relating to schemes’ illiquid asset holdings and the insurance of complex benefit features. Each year, this market breaks new ground and paves the way for more schemes to achieve their future aims. We expect 2025 to be no different.”

From a regulatory perspective, the Prudential Regulation Authority (PRA) recently noted the continued rapid growth of the UK bulk annuity market, driven by high demand from pension schemes. It also emphasised the need for insurers to prudently manage their capacity to support ongoing market growth.

John Baines, senior partner in Aon’s UK risk settlement team, added, “In its annual ‘Dear CEO’ letter to insurers, published on 9 January, the PRA set out its priorities and expectations for insurers in 2025. These include that insurers should make certain that the high levels of competition in the market do not weaken their pricing discipline and do not incentivise weaker risk management standards. We fully support this level of focus from the PRA. At a time when the market continues to enjoy significant growth, it is vital that appropriate controls are in place to maintain policyholder protection.”

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