Article July 14, 2021

Pension plan annuity purchase update – Q1 2021

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Market activity

Group annuity risk transfer sales ($ millions)

Source: LIMRA Secure Retirement Institute

 

After a strong finish to 2020, pension buyout sales were very slow to start the new year, totalling just over $1B in Q1 2021. This represents a 77% drop from Q1 2020 and the lowest quarterly total since Q1 2015. 43 buyout contracts were sold in Q1 2021, compared to 77 contracts in Q1 2020. Despite the slow start, total pension buyout sales in 2021 are still expected to exceed $25B.

What we're seeing

Pension buyouts started to pick up in Q2 and will continue to be even stronger in the second half of the year. We are seeing a steady flow of cases that will close throughout the remainder of the year. In addition, annuity pricing remains very competitive. For retiree only cases, pricing continues to average 98% of the economic liability¹, while plan termination cases which include in-pay and deferred annuities average approximately 100%². Another new insurer also entered the marketplace this spring, bringing the total number of insurers in this marketplace to 19, which will help ensure pricing remains competitive.

What we're hearing

Insurers and consultants alike are expecting another busy second half of the year, with Q4 sales once again likely to represent roughly 50% of the annual total. As a result, it is important for plan sponsors looking to complete a buyout later this year to get the attention of insurers this summer to avoid bidders declining cases this fall due to capacity constraints.

 

¹ Measured using FTSE curve and best estimate of underlying mortality.
² Based on plan demographics and the mix of deferred and in-pay annuities.

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