Pension risk transfer premiums fell significantly in July due to a continued drop in both discount rates and annuity purchase rates, a Milliman study said.
Discount rates dropped 37 basis points during July, while annuity purchase rates fell 22 basis points, said Milliman's latest pension buyout index study, released Tuesday.
The difference marks a decline in the relative cost of annuities to 102.8% of a plan's liabilities as of July 31, compared with 104.2% of liabilities a month earlier.
"July's drop in discount rates continued to drive an already historically low interest rate environment down even further," said Mary Leong, a consulting actuary with Milliman and co-author of the study, in a news release. "Insurers dropped their rates as well but didn't keep up with the steep fall in fixed-income yields, which led to the retiree buyout improvement. At 102.8%, this is the lowest rate we've seen since launching Milliman's Pension Buyout Index."
The Milliman Pension Buyout index uses the FTSE Above Median AA Curve and insurers' composite interest rates to estimate the average cost of PRT transactions.
