Issue 1: February 2023
Well, 5.4 years to be precise. That’s what Barnett Waddingham’s DB End Gauge Index tells us is the average time for UK defined benefit (DB) pension schemes to be able to buyout their liabilities at 31 January 2023. (Almost half the time estimated only 12 months ago!)
Indeed, most of the c5,000 DB schemes left in the UK are now closed to both new entrants and active members, and due to a rise in gilt yields (and potentially falling future life expectancy) funding levels are at record highs, suggesting buy-out is imminent.
It’s no surprise therefore that, as an actuarial recruiter, a question I’m often asked is: “how long will the DB pensions industry last?”
However, even if, as many predict, 2023 sees record buy-out volumes similar to those seen in 2019 when £44bn of liabilities were secured, with over £2 trillion of buyout liabilities remaining, it would still take over 50 years to buy-out all of these liabilities if record volumes are secured year after year.
Granted, as closed schemes get smaller, the overall buyout liabilities to secure will also fall, thus reducing the number of years required to fully secure all of the remaining DB schemes.
But, this does not solve the problem of limited capacity in the bulk purchase annuity (BPA) insurance and re-insurance market. Put simply, the current BPA insurers cannot take on all of the remaining DB schemes unless capacity is significantly increased.
And, as schemes shrink and we’re left with only the smaller pension schemes to insure, it also means that more transactions will be required to secure the same amount of overall buyout liabilities each year - which brings its own workforce capacity challenges. There’s only so many pricing actuaries to go round!
My conclusion is therefore that DB schemes will be around for many years to come, with the need for innovation creating more (not fewer) opportunities for actuaries.
Recently, I thought I’d put #chatgpt to the test to see if you could tell the difference between me and a robot…
68% of you incorrectly(!) guessed that the second advert was written by Artificial Intelligence (AI) when in fact it was the first advert. I’m not sure if this says more about how far AI has come, or what it says about me! Perhaps actuaries are not that far away from robots after all!
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