The estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process increased from 100.2 per cent of a plan’s accounting liabilities to 100.5 per cent of those liabilities in August, according to Milliman Inc.’s latest pension buyout index.
The index uses the FTSE above median AA curve and annuity purchase composite interest rates from nine insurers to estimate the competitive and average costs of an annuity de-risking strategy.
During the same time period, it found the average annuity purchase cost across all insurers in the index remained flat, at 102.9 per cent. It estimated the competitive bidding process saved pension plan sponsors about 2.4 per cent of pension risk transfer costs as of Aug. 31.
“Competitive buyout costs have stayed just above 100 per cent for the fourth consecutive month as we reach the typically busy fourth quarter,” said Jake Pringle, a Milliman principal and co-author of the index, in a press release. “With three more [Federal Reserve] meetings in 2023, plan sponsors looking to 2024 transactions will be watching how interest rates may move in reaction to recent inflation and jobs reports.”