Decline in Pension Risk Transfer Costs in Latest Milliman Report

Milliman, Inc., a global leader in actuarial science and consulting, recently unveiled its May report for the Milliman Pension Buyout Index (MPBI). The findings reveal a significant decline in the cost of transferring retiree pension risk to insurers, with costs decreasing by 40 basis points—from 100.1% to 99.7% of a pension plan's accounting liabilities, also referred to as the accumulated benefit obligation (ABO). This adjustment highlights a more cost-effective landscape for plan sponsors aiming to transfer pension liabilities.

Additionally, average annuity purchase costs fell by 90 basis points across all insurers, moving from 103.4% to 102.5%. This reduction allows plan sponsors to achieve nearly 2.8% savings on pension risk transfer (PRT) costs through a competitive bidding approach. Jake Pringle, co-author of the MPBI, noted that with interest rates steady amidst inflation at a three-year high, and competitive indices reaching three-year lows, the environment is ripe for increased PRT activities as insurer capacities are anticipated to be fully utilized in the latter half of the year.

The MPBI leverages a comparison of the FTSE Above Median AA Curve against annuity purchase interest rates from nine leading insurers, offering critical insights into the costs associated with PRT annuity de-risking strategies. It's vital to consider that individual plan buyout costs may vary based on specific factors such as plan size, complexity, and competitive market dynamics. Established in 1947, Milliman continues to provide comprehensive consulting services across diverse sectors, emphasizing risk management, financial planning, and employee benefits. For ongoing updates on pension buyout analyses, interested parties can reach out to Milliman directly.