Single Premium Pension Buy-Out Sales Reach Nearly $6B In 3Q

WINDSOR, Conn., Nov. 29, 2016 — According to LIMRA Secure Retirement Institute research, single premium pension buy-out sales were almost $6 billion in the third quarter of 2016.
This is the largest amount of sales reported in a third quarter since 1990.

“Pension buy-out activity in the third quarter jumped 80 percent, compared with prior year and marks the sixth consecutive quarter to exceed $1 billion in sales. This is a first for this market,” said Michael Ericson, analyst for LIMRA Secure Retirement Institute. “Traditionally, buy-out sales have experienced the largest growth in the fourth quarter.  However, given the remarkable sales this quarter, third quarter sales may be higher than fourth quarter in 2016.”

Activity in the first nine months of 2016 was slightly higher (less than 1 percent) than the first nine months of 2015, totaling more than $8 billion. As of Sept. 30, 2016, 17,165 buy-out contracts were reported, up 0.7 percent. The Institute reports 225 plan sponsors have converted their defined benefit (DB) pension plans to group annuity contracts year to date. This is an all-time high and 17 percent higher compared with prior year.

By the end of the third quarter, there were $141 billion in assets in the group annuity risk transfer market.

Sustained low interest rates and volatile equity markets have challenged plan sponsors to keep their DB plans properly funded. In addition, the Pension Benefit Guarantee Corporation (PBGC) has significantly increased its premiums and changed to new mortality tables which are less favorable to plan sponsors.

“Despite a recent uptick in interest rates, we believe the trend to transfer pension risk to an insurer will continue in the fourth quarter,” said Ericson.

LIMRA Secure Retirement Institute conducts the Group Annuity Risk Transfer Survey each quarter with participation from 14 financial services companies that provide group annuity contracts for this market.

A breakout of group pension buy-out sales by quarter since 2012 is available in the LIMRA Data Bank.