Strong Pension Buyout Market Sheds Seasonality

Single premium pension buy-out sales totaled $1.4 billion in the first quarter of 2017, according to data shared by the LIMRA Secure Retirement Institute, taken from its quarterly U.S. Group Annuity Transfer Survey.

This represents a 31% increase compared with prior year’s results. In fact, this is “only the second time first quarter buy-out sales have exceeded $1 billion since 2008 and marks the highest first-quarter results in at least 15 years.”

Matthew Drinkwater, assistant vice president, LIMRA Secure Retirement Institute, observes that the strong seasonality that used to be associated with the pension buyout marketplace has fallen away. He says the Secure Retirement Institute has more recently observed broader, consistent sales throughout the year.

LIMRA data shows total assets of buyout products were nearly $99 billion at the end of the first quarter 2017, nearly 11% higher than first quarter 2016.  

“Recent Institute research finds eight in 10 employers with a traditional defined benefit (DB) plan are interested in pension risk transfer (PRT), like a buy-out,” Drinkwater says. “Since 2014, there has been a significant shift in plan sponsors’ interest in PRT. Today, four in 10 plan sponsors are very interested in PRT, a 10 percentage-point increase from the results of a 2014 Institute study of DB plan sponsors.”

Roughly eight in 10 DB plan are less than 90% funded, the LIMRA analysis shows, but there are strategies a plan sponsor can use to improve their funded status slowly over time, which can have significant impact on their bottom line.

“As plans approach full funding, they become attractive candidates for PRT,” Drinkwater concludes. “The Institute expects funding ratios to improve as interest rates increase, leading more and more plan sponsors to consider PRT in the next few years.”

Additional PRT data and pension funding research is available here.