Life insurance

In the defined contribution (DC) pension market, firms are facing pressure to consolidate their default arrangements (driven by the new UK Pension Schemes Bill) and to decide how they will implement Targeted Support (TS) to deliver better retirement outcomes, while growing their DC business. Life insurers in the bulk purchase annuity (BPA) market will continue to compete for deals expected to remain at around £40bn a year. The market remains extremely competitive driven by an increasing number of firms (re)entering the market and the emergence of new sources of capital. To succeed, insurers need to navigate increasing regulatory requirements while strengthening their operational capabilities to enable them both to price accurately and absorb and manage the acquired pensions liabilities.
 

Transforming the DC pensions market

In Europe (including the UK), the DC market is at the centre of ambitious reform plans built on two pillars:

1. Size and consolidation, especially in the UK, through requirements to increase the size of schemes/funds and to improve fund performance through more diversified investment including into private assets; and
2. Consumer support, by rethinking the provision of guidance and support to improve retirement outcomes.

DC pensions reform is gaining momentum in the UK where legislative changes are set to reshape the market. The EU Commission’s reforms on DC pensions are at an earlier stage of development, but their objectives seem closely aligned to the UK’s. 

1. Consolidation: to be or not to be a workplace DC pensions provider by 2030?

UK and EU legislators are aiming to boost the size of DC schemes so that they reach critical size thresholds which should allow for greater investment in productive assets.¹ In the EU, the European Insurance and Occupational Pensions Authority (EIOPA) and the Commission have recommended to Member States the introduction of auto-enrollment to increase participation and saving rates in supplementary pensions. In the UK, where auto-enrollment is already well-established, the new Pension Schemes Bill will introduce a number of important structural reforms. It will require multi-employer DC schemes to have £25bn assets under management (AUM) by 2030 in their main default arrangement, and all schemes to conduct a value for money (VfM) assessment.^2,3 Schemes offering poor VfM will eventually be required to transfer to other schemes, further increasing sectoral consolidation.⁴

UK multi-employer DC providers with current AUM between £5-15Bn will be under intense pressure to meet the 2030 deadline, and will likely need to combine internal consolidation and acquisitions to meet the threshold. The Government expects only c.20 DC Superfunds to survive in 2035 from this consolidation drive.⁵ This year, all DC players in Europe will need to finalise a strategy for their DC future. In the UK, where the timeline is more pressing, the smallest players should focus on exit value maximization, while those intent on survival should have a clear plan to reach the threshold. The largest insurers will likely compete for acquisition targets in the next few years to reinforce their dominant positions in the market. 

Embarking on ambitious fund consolidation programmes will require significant operational effort and is likely to be complicated by legal and compliance risks. For example, insurers may need to adjust fee structures and investment options to deliver good outcomes to customers following consolidation. In addition, many UK insurers will be looking to consolidate into a master trust structure as these provide more flexibility when it comes to transferring members between funds. Doing so will mean that more DC pensions business will move under the remit of the Pensions Regulator from the Financial Conduct Authority and Prudential Regulation Authority (PRA). In the medium term, insurers will need to prepare to engage more extensively with a less familiar regulator that is likely to be looking to expand its capabilities considering it will oversee a much bigger share of the DC market in the next five years. 

2. Leveraging regulation and technology to improve retirement outcomes

51% of customers in the UK find it challenging to access pension information, and c.43% of UK workers are undersaving for retirement.^6,7 In the EU, the picture is similar since more than a third of customers are not saving enough.⁸ In response to this challenge, regulators are proposing a range of tools and regulations to improve retirement outcomes.

In both the UK and EU, regulators are aware of the critical relevance of pensions dashboards to give customers full visibility over their pension savings. The EU Commission has recommended that Member States should roll out dashboards while, in the UK, numerous providers are already connected to the Dashboard ecosystem for a launch expected this year. Firms should consider how dashboards and other sources of data will affect their strategy to engage with customers around product value, customer understanding and decision-making. 

 In the EU, the adequacy of the retirement advice regime is already under discussion, with EIOPA recommending the introduction of a form of simplified advice for EuroPensions. But on this issue, the UK has already made a significant step forward, with the introduction of the TS framework. It will offer a promising opportunity for firms to bridge the gap between guidance and financial advice. Firms offering TS will be able to make suggestions around pensions saving to groups of customers sharing similar characteristics.

The publication of the final rules on TS provides more clarity for firms developing TS solutions despite some uncertainty remaining [click here to access our article on TS for more details]. It is clear that insurers will need to apply significant judgement across various areas of the regime to inform their approach to segment design, use of assumptions, and outcome monitoring. We expect TS’s success to hinge on firms’ ability to leverage and gather high quality customer data, as highlighted by more than 50% of respondents to our ABI/Deloitte TS survey [click here to access the survey findings].

TS will require firms to develop new products, customer journeys and communications, as well as risk and compliance processes, controls and metrics to deliver good outcomes for customers. In parallel, firms will also need to consider other, related developments, such as proposals on simplified advice, guided retirement and pensions dashboards (Figure 1).

This means that firms should adopt a flexible approach to building a TS offering which they can adapt to an increasingly complex landscape with interconnected offerings and solutions. We expect insurers will be able to deliver TS from April onwards, meaning that firms that want to hit this date have a lot to do to get their TS offerings up and running. 

Source: Deloitte ECRS analysis

Finally, for all European DC providers, technology and digital support tools, including Artificial Intelligence, will be crucial to improve internal process efficiency, reduce operational costs and integrate data-driven insights into pensions product suggestions (especially TS) at scale. [See our AI and data op-ed for further details].
 

The BPA market: growing pains

The UK BPA market is showing signs of sustaining momentum into 2026. This is partly due to high interest rates contributing to many schemes’ improved solvency positions.⁹ Since 2022 the market has seen significant growth, and four new entrants, underscoring a strong interest, especially from private capital specialists. The changes to the calculations of the Risk Margin and increased Matching Adjustment (MA) flexibility offered by Solvency UK (SUK) further increased that appeal. 

Source: XPS based on media reports¹⁰

Although the SUK reform is now complete, we expect regulation to continue to play a significant role in insurers' ability to access BPA opportunities at scale. The PRA has reinforced prudential safeguards across the BPA deal chain (Figure 3), especially around credit, liquidity and counterparty default risk management. 

Source: Deloitte ECRS analysis

In this demanding regulatory environment, three strategic areas will be critical for BPA players:

1. Asset valuation modelling and origination expertise are key priorities

Growing the BPA portfolio requires high levels of capital; and the ability to source high volumes of capital-efficient assets (especially MA-eligible), or to reinsure the acquired business. The PRA is reviewing the appropriateness of the current capital treatment for FundedRe and might propose changes that make it less attractive in future. This points to a market that needs to get better at asset origination and reduce reliance on reinsurance. Almost half of EMEA insurers are looking to increase their exposure to private assets to increase diversification and return on investment,¹¹ despite concerns from supervisors. But insurers will need to demonstrate they are able to invest safely in these assets. 

To this end, firms will need sufficient investment risk monitoring tools to review private asset valuations regularly and adjust their asset/liability management and hedging strategies to reflect any changes in risks. Insurers with private investment expertise are well-placed to leverage opportunities from increasing investment flexibility (SUK/ MAIA). 

However, firms will need to innovate to access MA-eligible assets whilst securing funding to back BPA deals.¹² Firms able to assemble teams combining innovative capital structuring, valuation modelling and asset origination expertise, or that partner with firms having expertise in these fields, will be strongly positioned for success in 2026. 

2. BPA deals: more transactions and more complexity

We expect the number of deals to remain high this year, driven by buyouts of small- to medium-sized schemes.¹³ Strong operational capacity to oversee contracts and pricing expertise will be crucial to remain competitive as some insurers already offer streamlined processes to quote competitively in this segment. We expect this part of the market to continue to offer opportunities, provided insurers can manage rising operational complexity with regards to:

• Non-standard contractual clauses: the PRA is concerned about non-standard clauses such as STTRs, and will review firms’ handling of these clauses this year. Firms should identify non-standard clauses in place (e.g., deferred premium, residual risk, profit sharing), and understand their aggregate impact on liquidity, MA eligibility and solvency under a stress event. More broadly, firms may also benefit from joining up their solvent exit, FundedRe recapture, and liquidity reporting workstreams to identify risks stemming from their (re)insurance and other contracts.¹⁴
• Pricing: an increasing number of schemes incorporate liability-driven investments, derivative exposures, and private assets in their portfolios, whilst the novation of existing longevity swaps is becoming relatively common as part of the premium paid for scheme buyouts to the insurer. Beyond state-of-the-art valuation tools, insurers will need the right expertise, data, and systems capacity to quote in this segment without significantly deviating from their risk appetite.

3. Meeting regulatory expectations: a rising bar

Regulatory scrutiny of the BPA market is increasing, driven by the rising volume of annuity liabilities it manages. This year firms will need to prepare for new solvent exit planning and liquidity reporting requirements alongside, where applicable, implementing the new MAIA regime and delivering attestations and regulatory submissions (FundedRe recapture analysis, MA and internal model attestations).

Risk and governance functions will need sufficient resources to oversee these workstreams and ensure robust senior executive and board approvals. For example, insurers intending to use the new MAIA will need to decide what to do if the PRA does not approve the assets and they need to be taken out of the MA portfolio. Also, firms seeking to originate and invest in complex/private assets may need to review their governance arrangements to reinforce oversight over their valuation models. This may include assessing the suitability of the committee structure and reviewing how potential conflicts of interest are managed. [See our private markets op-ed for further details].

The International Monetary Fund, Bank for International Settlements and International Association of Insurance Supervisors have all highlighted the crucial importance of robust risk management in the life insurance sector.¹⁵ Insurers’ risk and compliance teams must rise to the challenge and team up with investment, finance and actuarial functions to demonstrate to the PRA that they can be trusted with the pension liabilities of millions of citizens.