The Mercer Pension Buyout Index was launched today to help pension fund officials monitor the cost of paying an insurance company to assume all or some of their pension liabilities.
David Ellis, head of longevity risk management at Mercer, said the index combines data from Aviva, Legal & General and Pension Insurance Corp. — which were responsible for about 80% of the total number of pension bulk annuity transactions in 2009 — to estimate the cost of a buyout for a hypothetical pension fund.
For example, it would have cost a fully funded pension plan with £100 million ($155 million) in assets under U.K. accounting rules an estimated £144 million to transfer the pension liabilities to an insurance company as of Jan. 31, according to the index. That cost would have been around £138 million two months earlier.
“Pricing does move from month to month, even day to day,” Mr. Ellis said in an interview. “Many clients struggle to see where prices are heading; (the index) is meant to give them an idea of which way the trend is going.”
In 2009, insurance-based pension buyout transactions totaled about £4 billion, which Mr. Ellis described as “a trickle” in the £2 trillion U.K. pension market. “Nevertheless, the market is gathering pace.”