LIMRA, a research and consulting organisation in the insurance and financial services industries, reports that pension risk transfer (PRT) transactions increased by 14% in the first half of 2024 compared to the same period in 2023.
Meanwhile, MetLife, a global provider of insurance, annuities, and employee benefit programmes, reports in its 2024 Pension Risk Transfer Poll that 93% of companies with de-risking objectives plan to fully divest their defined benefit (DB) pension plan liabilities, up from 89% in the 2023 survey.
About 52% of these companies expect to complete the divestment in the next two to five years, with an average timeframe of 3.8 years.
“As the Poll and other market data indicates, the pension risk transfer market continues its bullish growth and will likely continue to remain strong in the near future,” commented Elizabeth Walsh, vice president, US Pensions, MetLife.
“As a market leader focused on service, MetLife has seen this activity firsthand, including several transactions with the same clients as they continue to derisk in tranches, focusing on specific participant populations.”
The ongoing interest in pension de-risking is largely driven by the current macroeconomic conditions. In particular, 47% of plan sponsors cite rising interest rates as the primary factor, followed by 45% pointing to inflation, and 44% referencing increased market volatility.
MetLife’s Poll shows that 93% of plan sponsors are evaluating the cost of maintaining their pension plans against the benefits provided.
Many are preparing to mitigate their defined benefit (DB) plan risks, having already taken several key steps in the past two years that often precede pension risk transfers.
These actions include improving the accuracy of plan data (56%), increasing contributions (52%), involving C-suite executives more directly in managing the plans (29%), offering lump sum distributions to terminated-vested participants (23%), and implementing liability-driven investment (LDI) strategies to reduce risks that could affect the plan’s funding status (20%).
Walsh continued: “It is encouraging to see improving data quality as a top action item. Through our implementation experience, we have seen the benefit of clean participant data, which leads to a smoother transfer of the administration to the insurer, and ultimately, a better participant experience.”
As further evidence of plan sponsors’ growing interest in pension de-risking, the Poll found that 85% of plan sponsors have either already held or are currently having discussions with their plan advisors or consultants about executing a pension risk transfer.
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