Key Takeaways
- • An estimated £600bn of UK defined benefit pension assets is expected to move to insurers over the next decade, with around £150bn transferred in the last three years, according to Macfarlanes.
- • Illiquid credit already accounts for over 40% of UK matching adjustment portfolios, mostly secured lending against property and infrastructure rather than sponsor-backed corporate lending.
- • Two 2024 rule changes, the up-to-10% allowance for highly predictable cash flows and removal of the sub-investment-grade cliff, have widened the scope for private credit in annuity portfolios.
- • Typical private credit features such as floating rates and prepayment optionality do not directly meet matching adjustment requirements, so structuring through private debt CLOs or rated note feeders is central to access.
- • Manager opportunities depend on whether originated assets can be structured to meet MA requirements and whether strategies add to insurers' existing origination capabilities, as supply of eligible assets is the usual constraint.
Summary
According to Macfarlanes, an estimated £600bn of assets is expected to move from UK defined benefit pension schemes to insurers over the next decade, with around £150bn already transferred in the last three years. Improved funding levels have left many schemes fully funded or in surplus, and as assets and liabilities move to insurer balance sheets, annuities must be backed by long-dated, liability-matched portfolios. Insurers are sourcing a growing share of that portfolio from private credit.
Illiquid credit already makes up over 40% of UK matching adjustment portfolios, though most of this is secured lending against property and infrastructure rather than the sponsor-backed corporate lending usually associated with private credit. Recent transactions illustrate manager interest in insurer balance sheets. Athora, backed by Apollo, completed its acquisition of Pension Insurance Corporation in March 2026. Brookfield acquired Just Group for £2.4bn in 2025, merging in its Blumont platform. Blackstone agreed a private credit partnership with Legal & General worth up to $20bn. Standard Life launched a UK Pension Risk Transfer Partnership with CVC, Prudential Financial, Goldman Sachs and MS&AD, giving it access to direct lending, asset-backed lending and structured credit origination.
The regulatory framework is evolving under Solvency UK, which the PRA is rebuilding from Solvency II. The matching adjustment allows insurers holding assets to maturity and closely matching annuity cash flows to discount liabilities at a rate closer to the credit-adjusted asset yield, net of a credit risk allowance. Two changes took effect in 2024: up to 10% of the MA benefit may come from highly predictable cash flows, and the sub-investment-grade cliff was removed. The Matching Adjustment Investment Accelerator, introduced in October 2025, lets insurers with existing permissions add eligible assets and claim benefit immediately, subject to a cap. Take-up of the highly predictable bucket has been slower than expected, and most managers are targeting the larger fixed cash flow bucket.
The matching adjustment reduces the present value of liabilities and therefore capital requirements. Macfarlanes illustrates that for a £1bn, 10-year liability, a public single-A bond yields a 37bps matching adjustment, reducing the best estimate liability by about £35m. A private debt issuance adding 100bps would lift the adjustment to 137bps and reduce the liability by a further £122m, assuming no additional fundamental spread. The same discount effect supports lower pricing in bulk annuity transactions. Ten insurers are currently active in the UK PRT market.
Typical private credit features do not directly meet MA requirements, since assets must be bonds or have similar cash flows, fixed or highly predictable, matched to liabilities in the same currency and generally held to maturity. Two structures account for most activity. A private debt CLO places loans in an SPV, with a senior note qualifying for MA, but it falls under securitisation regulation with higher capital charges and reporting requirements. A rated note feeder invests in an underlying private credit fund and issues rated notes alongside subordinated equity or LP interests. Macfarlanes notes that the constraint in the market is usually the supply of MA-eligible assets, which leaves room for external managers even where insurers have in-house capabilities.
Illiquid credit already makes up over 40% of UK matching adjustment portfolios, though most of this is secured lending against property and infrastructure rather than the sponsor-backed corporate lending usually associated with private credit. Recent transactions illustrate manager interest in insurer balance sheets. Athora, backed by Apollo, completed its acquisition of Pension Insurance Corporation in March 2026. Brookfield acquired Just Group for £2.4bn in 2025, merging in its Blumont platform. Blackstone agreed a private credit partnership with Legal & General worth up to $20bn. Standard Life launched a UK Pension Risk Transfer Partnership with CVC, Prudential Financial, Goldman Sachs and MS&AD, giving it access to direct lending, asset-backed lending and structured credit origination.
The regulatory framework is evolving under Solvency UK, which the PRA is rebuilding from Solvency II. The matching adjustment allows insurers holding assets to maturity and closely matching annuity cash flows to discount liabilities at a rate closer to the credit-adjusted asset yield, net of a credit risk allowance. Two changes took effect in 2024: up to 10% of the MA benefit may come from highly predictable cash flows, and the sub-investment-grade cliff was removed. The Matching Adjustment Investment Accelerator, introduced in October 2025, lets insurers with existing permissions add eligible assets and claim benefit immediately, subject to a cap. Take-up of the highly predictable bucket has been slower than expected, and most managers are targeting the larger fixed cash flow bucket.
The matching adjustment reduces the present value of liabilities and therefore capital requirements. Macfarlanes illustrates that for a £1bn, 10-year liability, a public single-A bond yields a 37bps matching adjustment, reducing the best estimate liability by about £35m. A private debt issuance adding 100bps would lift the adjustment to 137bps and reduce the liability by a further £122m, assuming no additional fundamental spread. The same discount effect supports lower pricing in bulk annuity transactions. Ten insurers are currently active in the UK PRT market.
Typical private credit features do not directly meet MA requirements, since assets must be bonds or have similar cash flows, fixed or highly predictable, matched to liabilities in the same currency and generally held to maturity. Two structures account for most activity. A private debt CLO places loans in an SPV, with a senior note qualifying for MA, but it falls under securitisation regulation with higher capital charges and reporting requirements. A rated note feeder invests in an underlying private credit fund and issues rated notes alongside subordinated equity or LP interests. Macfarlanes notes that the constraint in the market is usually the supply of MA-eligible assets, which leaves room for external managers even where insurers have in-house capabilities.
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