Recognising the role of annuities in the UK’s growth agenda

The zeitgeist debate of using pension money for various UK economic goals – whether this be infrastructure investments, public markets or growth companies via private markets – has been dominated by investments made by defined contribution (DC) schemes, and defined benefit (DB) schemes.

Indeed, barely a week goes by without another contribution to the debate on how the UK’s pension fund assets could help power growth in the UK economy.

But despite the focus on DC and DB schemes, bulk and retail annuity providers – which invest hundreds of billions of pounds – have garnered less attention in the Department for Work and Pensions and HM Treasury’s Pension Investment Review. Even with their key, and very positive, role.

Our data, outlined for the first time in our report Powering UK Growth Through Pensions, showed that 65% of the assets held in 2023 by participating bulk and retail annuity firms were invested in the UK. This totalled a huge £178bn – and the market total including all firms would be even larger.

Our report highlights how annuity providers already invest in UK housing and infrastructure, including regeneration projects and renewable energy. Over £100bn of annuity assets are invested in UK corporate bonds, mortgages and loans. This supports projects such as offshore North Sea wind farms and the Thames Tideway Tunnel, as well as UK social housing projects and equity release mortgages, where capital released in turn supports a range of sectors in the UK and creates jobs.

Annuity providers are also big holders of government debt, with nearly £50bn invested in UK gilts, which support government’s day-to-day spending and long-term investment.

A lot of these investments derive from bulk annuity providers, who help DB pension schemes’ risk management strategies, including buyout – the most established commercial DB endgame solution. Our data implies that these insurers have a greater home bias in their investment strategies than the DB schemes they serve. The Pensions Policy Institute estimates that 55% of the private sector DB pension scheme assets are invested in the UK – a proportion which is 10% less than bulk and retail annuity providers.

Clearly, the bulk insurance market is a key growth area in the UK’s financial services sector. And it’s changing rapidly. 2024 was another record year for bulk annuity providers, with £47bn in total transactions covering approximately 341,000 DB scheme members. It has also seen four new entrants in the last 18 months, which is particularly significant as insurance is typically seen as a mature market.

DB schemes will benefit from these changes. In their recent webinar, Hymans Robertson discussed their projections for insurer capacity for this year, which they think will see an increase of over 100% in market capacity for smaller schemes. Similarly, LCP predict there will be over 300 buy-in transactions this year, with buy-in deals having more than doubled in the last five years.

This growth will mean more DB schemes accessing appropriate risk management to protect their scheme members, a growing and innovative UK market for the government to focus on in its new industrial strategy and, as shown in our data, more money for UK investments.

Similarly, retail annuities are also having a moment, having re-emerged as a popular retirement product. Our data showed that sales reached a 10-year high between 2023 and 2024,  with a 23% increase from the following year.

In addition, the insurance regulatory regime – Solvency UK – was fully implemented at the end of last year. These reforms are particularly consequential for how annuity insurers invest.

We are working closely with government and the Prudential Regulation Authority on ensuring these reforms and market growth are fully leveraged so that the pace of investments in the UK is accelerated. This is vital to help achieve our sector’s £100bn commitment to invest in green and good assets in the UK.

Hetty Ahern is head of long‑term savings policy at the Association of British Insurers.