Pension plan annuity purchase update – Q4 2020
Group annuity risk transfer sales ($ millions)
Source: LIMRA Secure Retirement Institute
Pension buyout sales totaled $13.7 billion in Q4 2020, which represents the highest quarterly sales since Q4 2012 and a 21% increase from Q4 2019. Annual 2020 buyout sales totaled $25B, which was a 10% decrease from 2019, mainly due to slower sales in the second and third quarters resulting from the COVID pandemic. 177 total buyout contracts were sold in Q4 2020, bringing the total number of contracts sold in 2020 to 432.
What we're seeing
Many plan sponsors saw strong asset returns in 2020, which along with rising interest rates, will make buyouts more attractive in 2021. 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 is also entering the marketplace this spring, which will help ensure pricing remains competitive.
What we're hearing
While total 2020 pension buyout sales didn’t quite match the 2019 total, 60% of insurers saw an increase in annual sales, which has given them an optimistic outlook for 2021 along with strong sales targets. As is usually the case in the first quarter, pension buyout sales are off to a slow start in 2021. However, sales should pick up going into the second quarter, and total pension buyout sales in 2021 are expected to match or exceed last year’s total of $25B.
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.
R&M pension plan services
Through a variety of strategies, we can help defined benefit plan sponsors solve some of their most acute challenges.