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 February, 2020, average accounting discount rates decreased by 19 bps, while annuity purchase rates decreased by 25 bps. This caused the estimated retiree buyout cost as a percentage of accounting liability (Accumulated Benefit Obligation) to increase from 104.6% to 105.2%.
When considering these results, please keep the following information in mind: