Single-Premium Pension Buy-Out Sales Jump 37% In 2021, SRI Finds

U.S. single premium buy-out sales totaled $34.2 billion in 2021, up 37% from 2020 sales, according to the Secure Retirement Institute (SRI) U.S. Group Annuity Risk Transfer Sales Survey.

This represents the highest annual single premium buy-out sales since 2012. Single-premium buy-out sales were $12.4 billion in the fourth quarter, down 10% from same period 2020.

“Remarkably strong third quarter sales propelled overall pension risk transfer (PRT) results in 2021,” said Mark Paracer, assistant research director, SRI. “Large transactions drove record buy-in sales and a near-record results for buy-out sales.”

There were four single premium buy-in contracts totaling $400 million in the fourth quarter, 74% lower than fourth quarter 2020. For the year, buy-in sales were a record $3.9 billion, more than double the sales in 2020.

In total, PRT sales were $12.8 billion in the fourth quarter, down 16% from prior year. In 2021, overall PRT sales were $38.1 billion in 2021, 42% higher than sales in 2020.

There were 172 buy-out contracts sold in the fourth quarter, resulting in a total of 420 buy-out contracts for 2021. This represents a 3% year-over-year decline for the quarter and year. These contracts covered more than 440,000 pension participants.

Total single premium buy-out assets increased 14% to $192 billion in the fourth quarter. Total buy-in assets were $4.3 billion in the fourth quarter, 24% higher than prior year. Collectively, single-premium assets totaled $196.2 billion, up 14%, compared with fourth quarter 2020 assets.

According to new SRI research, defined benefit plan sponsors’ interest in pension risk transfer deals has never been higher, which is likely a factor in the strong sales growth. The new SRI study finds nearly half of plan sponsors (47%) are very interested in a PRT deal to offload a portion of their pension liability, up from 41% in 2018.

“The outlook for the PRT market in 2022 and beyond looks promising,” noted Paracer. “Increased plan sponsor interest, improved funding levels and rising Pension Benefit Guaranty Corporation premium rates coupled with ample capacity from life insurers point to another strong year in 2022.”

A group annuity risk transfer product, such as a pension buy-out product, allows an employer to transfer all or a portion of its pension liability to an insurer. In doing so, an employer can remove the liability from its balance sheet and reduce the volatility of the funded status.

Nineteen companies participated in this survey, representing 100% of the U.S. pension risk transfer market.