Vast Majority of DB Pension Plan Sponsors Say Inflation Impacts Decision to Mitigate Risk: Survey

Read: Risk Management Conference 2022: Navigating rising inflation, minimizing the impact on pensions

Indeed, 92% of respondents said that continuing to rise in interest rates would make them more likely to go ahead with a transfer of pension risk, including 43% who indicated that this decision was much more likely if interest rates continue to rise.

Additionally, 93% of respondents said that their pension plan receives special attention from company management due to the financial effects that volatility and related risks impose on their balance sheet/ status of the results. In fact, 95% said their company regularly assesses the value of their DB plan against the cost of the benefit.

The survey also found that 64% of respondents expect the number of large pension risk transfer transactions to likely increase over the next five years and 18% believe the high level will remain the same.

When asked what type of retirement risk transfer activity they are most likely to use to achieve their risk reduction goals, more than half (57%) of respondents indicated that they would use an annuity buyout, including more than a quarter (28 per cent) who said they planned to use a combination of an annuity buyout and a lump sum. This is a significant increase from two years ago, when only around a third (34%) said they would use a buyout only or a buyout in combination with a lump sum.

Read: Expert panel: What impact could inflation have on DB pension plans?

Among respondents seeking an annuity buyout, nearly two-thirds (62%) said they would get a buyout for retirement, 21% would get a buyout for plan termination, and 17% would not. do not yet know their approach. Going forward, the majority of respondents said they would take a phased approach to risk reduction, with two in three planning to settle their deals with a series of annuity buyouts (63%) rather than a single purchase of annuities (37%). hundred).

“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 press release. “Not only is inflation a factor, but other considerations, such as market volatility and rising interest rates, can potentially affect the decision to go ahead with transfers. retirement risks.

Read: Two decades of low inflation push defined benefit pension plans into alternative investments: Bank of Canada