Pension Risk Transfer Costs Inch Higher Amid Economic Instability
Event summary
- Milliman's Pension Buyout Index (MPBI) shows competitive pension risk transfer (PRT) costs increased to 100.5% of accounting liabilities (ABO) in February 2026, up from 100.4% the prior month.
- Average annuity purchase costs also rose 10 basis points, reaching 103.6% of ABO.
- The competitive bidding process continues to save plan sponsors an estimated 3.1% on PRT costs.
- Milliman principal Jake Pringle noted that the MPBI remained relatively stable despite a drop in accounting interest rates.
- The MPBI compares the FTSE Above Median AA Curve to annuity purchase composite interest rates from nine insurers.
The big picture
The slight increase in PRT costs, despite falling interest rates, signals a tightening of pricing within the annuity market. This trend reflects broader concerns about economic stability and its potential impact on insurer solvency and investment returns. While the competitive bidding process still offers significant savings, plan sponsors should carefully evaluate the long-term implications of these cost fluctuations when considering de-risking strategies.
What we're watching
- Rate Volatility
- Further global economic instability could exacerbate fluctuations in annuity purchase rates, potentially impacting the attractiveness of PRT strategies.
- Competitive Landscape
- The 3.1% cost savings from competitive bidding may be vulnerable if insurer participation decreases or bidding becomes less aggressive.
- Rate Sensitivity
- The MPBI's resilience to accounting interest rate decreases suggests a complex interplay of factors; the pace at which these factors realign will dictate future index movements.
Related topics