Inflation, market volatility, rising interest rates and geopolitics are potentially accelerating the retirement risk transfer market, according to a MetLife report.
MetLife’s Pension Risk Transfer Survey, which heard from 251 defined benefit plan sponsors who have risk reduction goals and $100 million or more in plan assets, found that 95% say that ‘higher inflation has ‘very or somewhat of an impact’ on their decision to go ahead with pension risk transfer. And 92% of plan sponsors say rising rates make them more likely to decide to reduce the risk of their plans.
“The economic landscape has changed significantly since our last survey, and that change has led DB plan sponsors to take a closer look at their plans and their retirement risk transfer options,” said Elizabeth Walsh, head of retirement solutions at MetLife, in a statement. “Not only is inflation a factor, but other considerations, such as market volatility and rising interest rates, can potentially impact the decision to go ahead with the PRT. “
According to the survey, macroeconomic concerns are prompting plan sponsors to maintain or even accelerate their retirement risk transfer plans. These include the geopolitical environment (96%), market volatility (94%), rising interest rates (91%), COVID-19 (91%) and the inflation (86%).
“2022 is shaping up to be another banner year for the PRT market and we don’t expect activity to slow down for the foreseeable future,” Walsh said. “It is clear from our survey results that reducing pension risk is a priority for many DB plan sponsors”
According to the LIMRA Secure Retirement Institute, 2021 was a banner year for the retirement risk transfer industry with $38 billion in sales, and plan sponsors expect that to continue in the years to come. . The MetLife survey found that 64% of plan sponsors predict the volume of large risk reduction transactions will increase over the next five years, while 18% believe the amount will stay the same.
“We expect this prediction to come true, given that nearly nine in 10 plan sponsors (89%) say they are likely to consider a PRT option from an insurance company in the next five next few years,” the report said.
MetLife said that as fears of a looming recession grow, executives are increasingly scrutinizing their company’s financial performance and taking a more active role in managing their defined benefit plans. The survey found that 93% of plan sponsors said their pension plan gets a lot of attention from company management because of the financial effects on their balance sheet. And 95% said their company regularly assesses the value of their defined benefit plan against the cost of benefits.
When it comes to the type of pension risk transfer activity plan sponsors are most likely to use, 57% said an annuity buyout, including 28% who said they plan to use a combination buyout annuity and a lump sum. This is an increase from two years ago, when 34% of plan sponsors said they would use a buyout only or in combination with a lump sum. Of those seeking an annuity buyout, 62% said they would get a buyout for retirement, while only 21% said they would get a buyout for plan termination. The remaining 17% said they did not yet know their approach.
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Tags: de-risk, Elizabeth Walsh, Geopolitics, Inflation, LIMRA Secure Retirement Institute, market volatility, MetLife, Pension Risk Transfer, poll, PRT, rising interest rates, Poll