A key measure of the relative attractiveness of annuitizing pension liabilities rose modestly in December.
The Dietrich Pension Risk Transfer Index, published by Dietrich & Associates, Plymouth Meeting, Pa., rose to 84.92 on January 1 from 81.31 at the start of December. Dietrich & Associates attributes the gain primarily to an increase in the relationship of current annuity rates compared to one-, three-, and five-year historical annuity rates.
This change was a function of older, higher interest rate environment years falling out of the historical average calculations, Dietrich discloses in a press statement. Modestly higher pension funding levels also contributed to the index ascending to its highest level in several months. The current annuity discount rate proxy embedded within the index is currently at 2.54%.”
“The changes in this month’s index confirm a few items,” says Jay Dinunzio, senior consultant at Dietrich & Associates. “First, we have been in a low and declining interest rate environment for some time. If rates stay persistently low and economic growth is sluggish, the attractiveness of locking in fixed income like returns via annuitization increases.