London Market Monitor – 30 September 2021
September delivers some ups and downs: Equity and bond markets mostly fell, risk-free rates rose, UK inflation increased, and volatility notched upward.
As the Pension Risk Transfer market continues to grow, it has become increasingly important for plan sponsors to monitor the annuity buyout market when considering a plan termination or de-risking strategy. The timing of the annuity buyout can ultimately impact the cost, as well as the plan’s funding and accounting measurements. Other factors also impact annuity buyouts such as size, complexity, and competitive landscape, which should be taken into consideration with the estimated cost illustrated in the MPBI.
During May, 2020, average accounting discount rates decreased by 27 bps, while annuity purchase rates decreased by 10 bps. This caused the estimated retiree buyout cost as a percentage of accounting liability (accumulated benefit obligation) to decrease from 105.5% to 103.9%.
When considering these results, please keep the following information in mind:
The Milliman Pension Buyout Index (MPBI) uses the FTSE Above Median AA Curve and annuity purchase composite interest rates from several insurance companies to estimate the cost, as a percentage of accounting liability, of transferring retiree pension obligations to an insurer. To review previous monthly findings, visit milliman.com/en/periodicals/Milliman-Pension-Buyout-Index.