Pension Plan Annuity Purchase Update – Q1 2023

Market Activity

Source: LIMRA Secure Retirement Institute

Following the record-breaking 2022, pension buyout sales started off strong in 2023,  totaling $6.3B in the first quarter, which represents the highest volume ever recorded in Q1 and a 138% increase compared to Q1 2022 sales of $2.7B. There were 116 buyout contracts sold in Q1 2023 compared to 75 in Q1 2022. The outlook for the rest of the year remains strong and total annual sales are expected to once again surpass $35B.

What We’re Seeing

Pension buyout activity remains very active in Q2 after a strong first quarter, particularly on the plan termination side. High interest rates continue into the second quarter, which have generally improved plan funded status and made group annuities more attractive. For retiree only cases, pricing continues to average 99% of the “fair” value of benefit liability[1], while plan termination cases which include in-pay and deferred annuities average approximately 101%[2].

What We’re Hearing

Plan terminations and retiree carveouts remain attractive to plan sponsors due to high interest rates and PBGC premium savings. As a result, 2023 pension risk transfer activity is expected to remain strong throughout the year. The high volume of cases has led to some insurers declining otherwise attractive cases due to capacity constraints. However, a few new insurers have begun bidding on cases in 2023, with the latest entrant closing on their first transaction at the end of May. These new entrants should continue to open up capacity and drive attractive pricing for plan sponsors looking to derisk their pension plans.

[1] Measured using FTSE curve and best estimate of underlying mortality.

[2] Based on plan demographics and the mix of deferred and in-pay annuities.

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