Pension Buyout Costs Level in January

In addition, the index findings for the U.S. mention the release of the Society of Actuaries new mortality tables, which predict longer life expectancy than those usually used to determine a plan’s accounting liability. Mercer expects this to cause a larger increase in accounting liabilities than insurer pricing, causing a decrease in buyout premiums.

For Canada, the index finds the estimated cost of a pension annuity transaction was about 0.3% lower in January than in December 2013. As such, for each $100 million of pensioner liabilities settled, the relative cost of a pension annuity transaction versus accounting liability would have been around $0.3 million lower.

For the United Kingdom, the index finds the estimated cost of a pension annuity was 2% in January 2014 than in January 2013. For a plan with pensioner liabilities of £1 billion, the relative cost of a pension annuity transaction versus accounting liability would have been around £20 million higher in January 2014 than in January 2013.

As for Ireland, the index shows the estimated cost of a pension annuity on a traditional annuity basis was approximately 2% lower in January 2014 than in December 2013. Compared to January 2013, the relative cost of a buyout has decreased by 4%.

The index allows for the monitoring of the general trend in pricing of pension annuity transactions in the United States, Canada, the United Kingdom and Ireland. Mercer uses up-to-date pricing information from each of the four countries to estimate the cost of insuring a sample plan’s current retirees as a percentage of the equivalent estimated accounting liability in each country. To produce the estimates, pension liability has been measured according to local standards in each country.

More information about the Mercer Global Pension Buyout Index can be found here.