The estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process decreased from 101.8 per cent of a plan’s accounting liabilities in November to 100.5 per cent of those liabilities in December, 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.
Read: Competitive pension risk transfer costs increase from 101.1% to 101.9% in October: report
During the same time period, the average annuity purchase cost across all insurers in the index also declined from 103.9 per cent to 103.1 per cent. It also estimated the competitive bidding process saved plan sponsors about 2.6 per cent of pension risk transfer costs as of Dec. 31.
“Retiree buyout costs open 2024 at their lowest level in almost six months — despite another sizable drop in accounting discount rates,” said Jake Pringle, a Milliman principal and co-author of the index, in a press release. “That, combined with the reset in insurer capacity as 2024 gets underway is likely welcome news for plan sponsors looking at pension risk transfer projects in the new year.”
Read: Report finds Canadian pension risk transfer market saw $7.8BN in transferred liabilities in 2022