Towers Watson has recently implemented an innovative solution addressing hundreds of millions of dollars of pension obligations in a single transaction with one of its clients.
The company calls it the largest such transaction of its kind in Canada. It didn’t name the client involved.
This restructuring of pension risk was achieved through a combination of a third-party annuitization and a self-insurance solution. Unlike a traditional annuity purchase, this approach optimized the use of company capital and provided added pension investment flexibility.
“It also reduced the risk of trapped capital resulting from improving pension plan financials yet, at the same time, provides plan members with the added comfort of knowing that their plan’s funding is maintained and preserved,” says Ian Markham, Canadian retirement risk management leader with Towers Watson.
The pension transaction comes at a time when the funding levels of Canadian plans have improved significantly.
A recent analysis by Towers Watson found that the funded position among typical Canadian DB plans increased to close to 100% at the end of 2013 from about 75% a year earlier.
“We are seeing an increasing level of activity and interest from organizations to take action now,” he explains. “Pension plan sponsors are keen to benefit from the recent improvement in the financial health of their plans in order to right size their financial risks.
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