Pension Risk Transfer Index Ticks Down in October

The index fell to 86.45 as of November 1, 2011, from 88.23.  The company indicated the change was driven by declining annuity interest rates and spreads, despite gains in pension funding levels. The indexes’ current annuity discount rate proxy of 3.36% represents a new low, despite still wide annuity spread levels which offer significant value relative to spot rate treasury and corporate bond yields.   

While conditions remain generally suboptimal, strategic annuity purchases for targeted groups of liabilities may be attractive for certain frozen pension sponsors who have shortened their investment horizon and/or reduced asset return assumptions, Dietrich said.