Competitive Pricing Rate for Pension Risk Transfer Drops from 99.9% to 99.3% in December

Average pricing buyout costs decreased from 103.2% to 102.8%

Cover Image Attribute: Representative image from Pixabay.com
Cover Image Attribute: Representational image from Pixabay.com 

On January 21, 2021, Milliman, Inc., a Seattle-based global consulting and actuarial firm, announced the latest results of its Milliman Pension Buyout Index (MPBI). As the Pension Risk Transfer (PRT) market continues to grow, it has become increasingly important to monitor the annuity market for plan sponsors that are considering transferring retiree pension obligations to an insurer.

Figure 1: Milliman Pension Buyout Index as of December 31, 2021
Figure 1: Milliman Pension Buyout Index as of December 31, 2021

During December, the estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process decreased from 99.9% of a plan's total liabilities to 99.3% of those liabilities. This means the estimated retiree PRT cost is currently 0.7% less than those plans' retiree accumulated benefit obligation (ABO). Meanwhile, the average annuity purchase costs across all insurers also decreased, from 103.2% to 102.8%. This means that the competitive bidding process is estimated to save plan sponsors on average around 3.5% of PRT costs as of December 31.

"2021 ended with some of the lowest competitive costs we've seen in the history of our study," says Mary Leong, a consulting actuary with Milliman and co-author of the MPBI. "While historically pension risk transfer slows in Q1, we expect competitive buyout costs to remain low with the increased interest in de-risking."

The MPBI uses the FTSE Above Median AA Curve, along with annuity purchase composite interest rates from eight insurers, to estimate the competitive and average costs of a PRT annuity de-risking strategy. Individual plan annuity buyouts can vary based on plan size, complexity, and competitive landscape.

When considering these results, authors have asked the readers/researchers/analysts to keep the following information in mind:


  • Annuity pricing composites are provided by the following insurers: Prudential Insurance Company of America, American United Life Insurance Company (OneAmerica), American General Life Insurance Company (a subsidiary of AIG), Minnesota Life Insurance Company (Securian), Pacific Life Insurance Company, Metropolitan Tower Life Insurance Company (MetLife), Massachusetts Mutual Life Insurance Company (MassMutual), and Banner Life Insurance Company (Legal & General America).

  • A representative retiree population was used.

  • Baseline accounting obligations are estimated using the FTSE Above Median AA Curve. The ratio will be different for plans that use other methods to develop their discount rates.

  • Plan sponsors should note that specific characteristics in plan design or participant population could make settling pension obligations with an insurer more or less costly than estimated.

To review previous monthly findings, visit milliman.com/en/periodicals/Milliman-Pension-Buyout-Index.

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IndraStra Global: Competitive Pricing Rate for Pension Risk Transfer Drops from 99.9% to 99.3% in December
Competitive Pricing Rate for Pension Risk Transfer Drops from 99.9% to 99.3% in December
Average pricing buyout costs decreased from 103.2% to 102.8%
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