Over half (53 per cent) of large UK defined benefit (DB) pension schemes are planning to implement a buy-in or buyout, according to research by Legal & General (L&G), in partnership with the Centre of Economics and Business Research (CEBR).

Full buyout was the most common long-term aim amongst larger DB schemes, with 38 per cent of respondents targeting this as their long-term objective, while a further 15 per cent are planning to implement a buy-in as part of their de-risking objectives.

This marks a "notable" increase from a previous study led by Legal & General in 2015, when only 11 per cent of large schemes were aiming for full buyout.

The research found that the time horizon for schemes looking to implement an insurance arrangement is also accelerating, as 46 per cent said their time horizon is shorter than a year ago by an average of over two and a half years.

All the schemes that cited buyout as their long-term objective are also aiming to complete a transaction within the next 3 years.

Preparations for this are already underway, as nearly half (46 per cent) of respondents said they had either already implemented or were currently investigating an investment strategy to target buyout, with a further 15 per cent considering it as a potential future strategy.

In addition to this, more than three-quarters (76 per cent) of the schemes surveyed are monitoring their buyout funding level on a quarterly basis.

This also follows a "record-breaking" 2023 for the UK bulk annuity market, with an estimated £50bn of retirement income secured through buy-ins and buyouts, including five transactions of over £2.5bn.

There were some areas where further consideration was needed though, as the research found that nearly two-thirds (62 per cent) of respondents had not yet reached an agreement on sharing any DB surplus, but agreed one was needed.

L&G Retirement institutional CEO, Andrew Kail, highlighted the findings as a "valuable window into a moment of great change and opportunity for the largest pension schemes in the UK as they look to the future of providing security in retirement for their members".

"The findings underscore the recognition of the stability and security that insurance offers," he continued.

"When we conducted our previous survey in 2015, the market had completed only seven transactions over £1bn, and since then there have been more than forty.

"There are around £1.4trn of DB pension scheme assets sitting on UK company balance sheets. Securing these pension promises will be a long-term process and we expect to see a healthy buy-in and buyout market for many years to come.

"Invariably the best outcomes are achieved through schemes engaging early with advisers and insurers so that they are well prepared and transaction ready.”

Adding to this, L&G Investment Management head of institutional clients, Mark Johnson, said: "The notable improvement in scheme funding, coupled with progress for DB scheme regulation, has driven a seismic shift in strategy.

"Endgame solutions are now front and centre of scheme agendas and the trustees we speak to are considering how they bridge to buyout, run-on or both.

"All schemes have their own challenges, whether it is managing illiquid assets and scheme surplus or constructing endgame-ready portfolios."

This story was first published on our sister title, Pensions Age.

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