A pension risk exchange – an online marketplace that aims to create those defined benefit pension plans looking to purchase de-risking annuities with those that provide such products C is here in Canada.
This week saw the unveiling from the Mercer Pension Risk Exchange, which has the modest objective of “revolutionizing the bulk annuity market for defined benefit pensions.”
The pension risk exchange C which Mercer has previously produced for the U.K. and the U.S. C is anticipated to achieve that goal by bringing openness to the market. Information is going to be provided and market participants will be able to act on which they see.
- Canada Pension Plan costliest in the country and which makes it bigger won’t make it better: Fraser InstituteCanada’s top ten pension funds tripled in dimensions since 2003, with assets worth over $1.1 trillion: study
The ultimate hope is to get better pricing for pension funds. That is expected to occur due to the dialogue between the fund and the insurer. Now insurers essentially acquire one crack at submitting an offer.
“That procedure for getting regular bids over time has tended to drive pricing down. That is what there has been within the U.S,” said Manuel Monteiro, leader of Mercer’s Financial Strategy Group. “[Through the workings of the exchange] it is a more dynamic process than the current static process,” he added.
The market is not yet live: for your to occur those pension funds attempting to purchase annuities will be necessary to sign up indicating what they are seeking.
Insurance companies, the entities that offer the annuities that look after so-called longevity and investment risk for that pension fund may also be necessary to register. Insurers give reassurance towards the pension funds by buying a particular pool of assets that will create the “right” amount of income to pay the retirees.
The Mercer Pension Risk Exchange “empowers sponsoring employers to become more strategic and sophisticated in their approach,” said Jean-Philippe Provost, leader of Mercer’s Retirement Practice in Canada.
In an interview, Monteiro said the online market is being developed due to strong demand from pension funds attempting to de-risk.
He also said the current product is “opaque with not lots of visibility.” In 2015, $2.6 billion of premiums were paid to purchase annuities using the market being of a similar size in 2014 and 2013. However the marketplace is lumpy: in 2 months of 2015 (October and November), half the company for the year was done.
Monteiro said that when a Mercer pension fund client makes the decision to de-risk, information (on a no-names basis) will be put on the website. (Non-Mercer clients may also participate.)
Details could be provided concerning the number of pensioners the fund wants looked after, their ages, the instalments they’re to receive and the workings of the plan.
“The insurers might have use of might could be submitting bids regularly,” he explained. “The insurers would have full visibility of the pipeline. Now the insurers do not know when a pension fund has an interest buying an annuity until you are looking at market,” he explained.
But having info on the pipeline of funds wanting annuities, Monteiro said, will allow the insurers to organize and to pick and choose which of them hit their sweet spots.
Monteiro argues the exchange is going to be good for pension funds since the prices on offer now vary depending on interest rates and the insurer’s appetite for business. “It’s good for plan sponsors simply because they will be able to time the transaction when the pricing is favorable on their behalf.”