With the end of year fast approaching, corporations with pensions may want to consider annuitizing those liabilities. That’s because the latest edition of the Dietrich Pension Risk Transfer Index found that the relative attractiveness of annuitizing pension liabilities continues to rise.
The index tracks market conditions that impact settlement costs. A higher index value means settlement costs have been reduced. Reviewing the autumn months, November’s index value rose to 97.1 from October’s figure of 96.19. Furthermore, the index’s current annuity discount rate proxy of 3.21 percent held steady despite the upswing of prices for both Treasuries and corporate bonds.
Geoff Dietrich, vice president of Dietrich Associates, pointed out in a statement that even though long-term interest rates are down nearly 25 basis points since their high in the summer, the cost to annuitize pension obligations has dropped 2 percent to 4 percent since that time. Consequently, all arrows point to executing a pension risk transfer now, Dietrich concluded.
“Whether or not a transfer is in your immediate future, there is little doubt that it makes sense to understand the magnitude of your pension liability, monitor the effects of today’s markets and be in position to act when the stars align,” Dietrich stated.