Pension risk transfer costs rise as market shows high capacity

In the United States, a recent report by Milliman, Inc., a global consulting and actuarial firm, revealed developments regarding pension risk transfer costs. This analysis indicated that in February 2025, the estimated cost for transferring retiree pension risk to insurers experienced a slight increase, moving from 101.6% to 101.7% of a plan's accounting liabilities, specifically the accumulated benefit obligation (ABO). Such fluctuations in costs can significantly impact plan sponsors who are considering pursuing pension risk transfer projects. Furthermore, the average annuity purchase cost remained stable across all insurers at 104.3%, signifying a competitive landscape for pension buyout negotiations. Plan sponsors may benefit from the competitive bidding process, which is projected to save them approximately 2.6% on pension risk transfer costs. This competitive environment is likely to motivate organizations to explore de-risking strategies effectively. Jake Pringle, a principal at Milliman, noted that the industry had a record-setting year in 2024 despite a slower fourth quarter. This achievement includes 794 single-premium contracts, resulting in nearly $52 billion in premiums being paid to insurers. With such impressive figures, many plan sponsors aim to take advantage of the current market conditions, characterized by stable retiree buyout costs and robust insurer capacity. The Milliman Pension Buyout Index (MPBI) was used to assess the costs involved in pension risk transfers based on the FTSE Above Median AA Curve and composite interest rates gathered from nine insurers. It's important to note that individual plan annuity buyouts can differ based on several factors, including plan size, complexity, and the competitive landscape. As seen, the current environment presents an opportune moment for plan sponsors to act on pension risk transfer projects.