Could private equity push traditional asset managers out of UK bulk annuity?
Following a record year for UK defined benefit pension scheme funding in 2024, private equity managers are among the companies taking note of an expanding opportunity set in the bulk annuity market (AP/Frank Augstein)
The UK government reported a record year for DB scheme funding in 2024, with 1,800 schemes reaching a self-sufficient financing level, up threefold from 600 in 2019.
Amid improving DB funding levels, the country's bulk annuity market is seeing notable expansion. LCP's 2025 pension risk transfer report shows a steady rise in buy-in and buyout deals year on year, while WTW's annual De-risking report forecasts £50bn in bulk annuity transactions in 2025.
"There is a very big market demand out there for pension schemes to settle their liabilities with insurers," says Andrew Ward, head of risk transfer at Mercer, who estimates that around half of DB schemes are now well-funded enough to eye an insurance transaction.
Amid the increasing opportunity set for bulk annuity deals, "existing insurers [are] looking to write more business and scale up teams", according to Ward.
"[It] is a long-term asset play. Via an insurance regime you have the assets to manage for a protracted period, so it's quite an attractive thing," he says.
The UK market is now home to a record number of active insurers, with 11 providers identified by April 2025 LCP data.
Chris Redmond, global head of research at WTW, says he sees an environment for further growth.
"It is not a secret that the amount of capacity within the insurance market currently is insufficient to meet the demand for buyout, [meaning] there is room for new entrants," he says.
During the past year, a wider range of investors have begun to take note of the UK-based opportunity. In July 2025, Brookfield Wealth Solutions, a subsidiary of Canadian-American alternatives manager Brookfield, agreed to acquire the UK's Just Group, while Athora, which is backed by North American alternatives specialist Apollo Global Management, agreed to take over Pension Insurance Corporation Group.
"I think it's entirely natural given the size of this market, and the fact that this market is projected to grow, that private equity firms and asset managers will be looking at it as something to invest in, where they can generate value," says LCP partner Steve Hodder.
Private equity for insurers
According to Ward, big-ticket acquisitions of UK insurers are "part of a much wider [global] trend in terms of private markets".
"It is recognised that... the returns and investing opportunities that come from [private] markets fit quite nicely with what insurers need," he says.
The illiquidity premiums and long-term investment horizons offered by asset classes including private equity, private credit and other alternatives such as infrastructure are often particularly well suited to an insurer's liability profile.
"In the UK, we're seeing an increased focus on trying to find these assets which give the right sort of stable, secure, long-term returns and match liabilities," Ward says. In September, MandateWire Analysis reported that private credit was emerging as the most attractive asset class for insurers.
The UK government is also promoting private market investment through initiatives, such as the Mansion House Accord, which are part of its domestic growth agenda.
For insurers to benefit from private market opportunities, "it's about finding suitable matching assets that work within the regulatory framework", Ward says. Private equity managers often have the right capabilities, which can be applied to the insurer's portfolio via acquisitions or partnerships.
At the same time, a degree of caution is necessary as private equity companies and other investors consider piling into the insurance market, Hodder stipulates.
While "we may well have room for more insurers", he says, "demand [for bulk annuity transactions] from the pension schemes this year has been a bit lower than many of the insurers were expecting".
"Back in 2022, when lots of schemes found themselves better funded, there would have been business decisions made then to enter this market," Hodder observes. "Now in 2025, we may have ended up with one too many insurers based on the demand and some might exit."
Concentration of competition
Consultants agree that consolidation in the bulk annuity market will impact competition among asset managers.
“The allocations to private debt are something of the order of two times what a traditional insurer might have done”
"We're going through a consolidation of pension scheme assets from well over 5,000 schemes currently to [10] bulk annuity providers," says Hodder. "There's clearly a big funnel from huge numbers of relatively small relationships and small allocations, to a much lower number of vast allocations.
"For the asset management industry, that's going to change the dynamic in terms of the relationships, the fee levels, the structuring of investments, the specialisms required rather than broad management."
Overall, scheme assets are likely to end up in more sophisticated investment strategies with more diversification, more active management and smaller tranches, he anticipates.
There is also the chance that consolidation between insurers and asset managers, such as North American private equity companies, could lead to more asset management being brought in-house.
"If the insurer is backed by an asset manager that has its own capabilities, that may well change things in terms of they may want to do more themselves, or they may be a more informed buyer," says Hodder.
Strategic asset allocations might see a shift, driven by the risk appetites of private equity-backed insurers. Redmond says: "One of the reasons they're able to disrupt is by taking slightly greater risk, optimising their investment strategy within the regulatory framework."
For example, he observes that "the allocations to private debt are something of the order of two times what a traditional insurer might have done". The resulting increased asset flows into private market asset classes could correspondingly draw capital away from other asset classes, meaning certain asset managers may risk losing out.
However, "the overall universe will be growing", Ward says, which indicates managers do not necessarily need to fear an evolving insurance landscape.
"There's an expectation that we're doing roughly £50bn of new bulk annuities each year, even increasing in future years," he says.
"The very reason we've had new players coming into the market is because there is opportunity, and that opportunity exists for everyone."
As for concentration, he notes that the industry is "a long way from a position where a small group of North American-dominated managers is winning every piece of businesses", with the market expected to "continue to be serviced by existing players, existing ownership and asset strategies... to a significant extent".
"At the moment the impact [of consolidation] has been positive," Redmond says. "The industry was a little bit stale at the margin. Having some new entrants doing things differently and bringing in innovation and competitive pricing is a good thing for corporates and end savers."
End-game alternatives
At the same time as bulk annuity transaction volumes are on the rise, alternative end-game options are also increasingly available to pension schemes.
Ward says: "It will be interesting to see what happens to [demand for insurance transactions] with some of the discussions around surplus, and the desire for schemes to run on.
"[We will see] whether or not the level of growth in bulk annuity continues at the levels some of the parties coming into the market have anticipated."
With the UK government's recent pension schemes bill proposing to ease access to pension surpluses by employers, DB schemes may be rethinking their strategies entirely.
"It may make sense for some larger schemes to continue to run themselves for longer, and that supports the economy and the gilt market," says Hodder. "We're seeing many or most [larger schemes] reassess what their options are. They are considering whether to consolidate and when, possibly leaving it later.
"To the extent those policies are starting to have the desired effect, that also impacts the demand levels in [the bulk annuity] market, which might flow through into the attractiveness of entering."
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In Aon's 2025 Defined Benefit Endgames Survey, 28 per cent of respondents that had reached a decision on their endgame vision planned to run on, either for a few years or indefinitely, an increase of 11 percentage points from the 2024 survey.
Commenting on the outcome of the survey, James Patten, UK endgame strategy team partner at Aon, says: "There is a marked shift in the proportion of schemes looking to run on, either for the long term or for a period of time, with the trend most pronounced for schemes with £1bn or more of assets."
A longer timeframe for consolidation also has its own implications for schemes' asset allocations. A pension scheme looking to consolidate later may want to invest assets in a longer-term way and return to growth assets, including within the private markets, with the aim to grow its surplus.
Checks and balances
Ward notes that "there is a change happening in the UK insurance industry at the moment, and no-one will want to be left behind".
"The challenge for existing insurers is — whether it's via their own existing managers, [through] partnerships or elsewhere — to find those competitive assets."
The role of an asset manager remains the same, he says. "It's about understanding the needs, in this case, of insurers, and fundamentally understanding the liabilities they're trying to match."
Meanwhile, potential concerns around the stability of private-equity backed insurers underscores the importance of the regulatory regime and the role of the trustee.
"That's always been the case, but these developments bring that into even sharper focus," says Ward.
Hodder adds that giving up control over the future ownership of the pension scheme is a fundamental feature of entering into these transactions.
"This may well sharpen minds in terms of what trustees should be thinking about, but I don't inherently see a change in risk profile," he says.
"Private equity firms buying long-term, heavily regulated bulk purchase annuity providers are not the Gordon Gekkos of the world looking to asset-strip and make a quick buck."
Ward is optimistic about the role of the regulator in protecting pension scheme members' interests as this market continues to change shape: "The UK insurance regime is known to be a relatively prudent regime," he says. "That's part of the reason why some of these private capital firms have come in via purchasing an insurer — it can be quite challenging to meet the hurdle of setting up a new insurer.
"For all these new players coming in, the rules of engagement are exactly the same as they are for existing insurers."
Under a prudent system, consolidation within the bulk annuity market promises greater scale and efficiency for DB schemes, with the arrival of private equity backers introducing the possibility of better outcomes for members, Ward says.
"In my view, as long as the [Prudential Regulation Authority] remains a proactive regulator in this area, then this can potentially enhance returns, allow more schemes to transfer risk and ultimately the assets that are being invested in can benefit society as well."