Monitoring pricing trends of bulk pension annuity transactions 

As defined benefit pension plans mature, many employers look to the insurance market to potentially secure their members’ retirement incomes in perpetuity.

If positioning your plan for an insurance transaction, it is important to understand how pricing works. The cost of insuring a defined benefit pension fund is subject to movements in global financial markets and the individual requirements for the insurer that is taking on the liabilities.

In addition, country-specific pricing often trends in different directions due to domestic influences, potentially leading to windows of opportunity in one country relative to another.

We use up-to-date pricing information from each country to estimate the cost of insuring a sample plan’s current retirees as a percentage of the equivalent estimated accounting liability.

Pension risk transfer transactions increasingly involve an international element. For example, a sponsoring employer might be seeking to reduce pension risk in subsidiaries based in different countries. Our multinational buyout index, which is updated monthly, allows you to monitor the general trend in the pricing of pension bulk annuity transactions in the US, UK, Ireland, Canada, and Germany. This chart is updated on a monthly basis.

The chart shows estimated annuity prices from insurers as a percentage of accounting liability in each of the five countries. For example, where a line is at the 113% level, this means that Mercer expects the average price of a pension annuity transaction for current retirees to be broadly 13% higher than the equivalent accounting liabilities.