Article October 1, 2021

Pension plan annuity purchase update – Q2 2021

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Market activity

Group annuity risk transfer sales ($ millions)

Source: LIMRA Secure Retirement Institute

 

After a slow start to 2021, pension buyout sales picked up significantly in Q2, totaling $5B. This is the second highest total for a second quarter of a calendar year, trailing only the $8B in Q2 2018 and representing a 119% increase from Q2 2020. However, first half sales in 2021 are down 11% compared to first half sales last year. 87 buyout contracts were sold in Q2 2021, compared to 72 contracts in Q2 2020. Pension buyout sales in 2021 are expected to total $25B to $30B.

What we're seeing

As is typically the case, pension buyouts really picked up in Q3 and will continue to be strong throughout the remainder of the year. We are seeing a constant flow of buyouts which will continue through at least November. With 19 insurers now in the marketplace, annuity pricing remains very competitive. For retiree only cases, pricing continues to average 97% of the economic liability¹, while plan termination cases which include in-pay and deferred annuities average approximately 100%².

What we're hearing

Some insurers are beginning to run into capacity constraints due to the number of deals being placed in September through December and are being more selective on which cases they bid as a result. Plan sponsors who are still thinking of completing a buyout in Q4 may want to consider delaying to Q1 2022 to increase insurer competition. However, this should be weighed against the additional administrative cost, particularly the PBGC premium impact.

 

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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