A pension risk transfer consultant says group annuity interest rate trends are sending customers a message: Get off the fence and buy now, while rates look good.
Mark Unhoch, a partner at October Three, says rates fell a little between July and August, but are still much higher than they were a year earlier, and still high enough to make the price of transferring pension risk to an insurer attractive.
“It is crucial for plan sponsors to enter the marketplace sooner, rather than later, to exploit favorable pricing,” Unhoch says.
What It Means
Unhoch is emphasizing that rates can be volatile and that pension plan sponsors should lock in good deals while they’re out there.
That might be a sign that your retail retirement planning clients should be transferring at least some personal retirement income risk to an insurer now, in case rates suddenly go back down, or insurers begin to lose interest.
The Market
October Three is a Chicago-based defined benefit pension consulting firm that offers employers a wide range of services, including help with buying group annuities to manage some or all pension plan risk.
For a plan made up entirely of retirees with an estimated pension benefits liability duration of just seven years, the average annuity purchase interest rate has decreased to 3.78%, with a range of 3.38% to 4.45%.
That’s down from an average rate of 4.04% in July, but up from an average of less than 2% a year earlier.
For plans in which 70% of the participants are retirees and 30% of the participants are under retirement age, and the estimated duration of pension liabilities is 15 years, the average rate has dropped to 3.93%, with a range of 3.56% to 4.41%.
The average rate for the mixed plan is down from an average of about 4.05% in July, but up from an average of a little more than 2% a year earlier.
Sponsors made about 200 pension risk transfer deals in the first half of the year, or about twice as many as they made in the first half of 2021, according to Unhoch.
The first-half deals placed through June 30 this year generated about $17 billion in premium revenue.
“The market rush is expected to continue into the second half of 2022,” Unhoch writes.
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