The estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process increased from 101.1 per cent of a plan’s accounting liabilities in September to 101.9 per cent of those liabilities in October, 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 rose 90 basis points, from 103.5 per cent to 104.4 per cent. It also estimated the competitive bidding process saved plan sponsors roughly 2.5 per cent of pension risk transfer costs as of Oct. 31, just slightly higher than at the end of September.
“Even with interest rates climbing again during October, retiree buyout costs fell short, rising to their highest levels in over three years,” said Jake Pringle, a Milliman principal and co-author of the index, in a press release. “Several insurers have reached capacity for 2023, so those plan sponsors with pension risk transfer on their agenda may see less competition and potentially higher pricing to close out the year.”