A pension risk exchange – a web-based marketplace that aims to bring those defined benefit pension plans looking to purchase de-risking annuities with the ones that provide such products C has arrived in Canada.
This week saw the unveiling from the Mercer Pension Risk Exchange, which has the modest objective of “revolutionizing the majority annuity market for defined benefit pensions.”
The pension risk exchange C which Mercer has previously produced for the U.K. and also 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.
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The ultimate hope is to get better pricing for pension funds. That is expected to occur due to the dialogue between your fund and the insurer. Now insurers essentially acquire one crack at submitting an offer.
“That procedure for getting regular bids over time has tended they are driving pricing down. That is what there has been in the U.S,” said Manuel Monteiro, leader of Mercer’s Financial Strategy Group. “[Through the workings from the exchange] it is a more dynamic process compared to current static process,” he added.
The marketplace is not yet live: for that to happen those pension funds attempting to purchase annuities is going to be necessary to sign up indicating what they are seeking.
Insurance companies, the entities that offer the annuities that take care of so-called longevity and investment risk for the pension fund may also be necessary to register. Insurers give reassurance to the pension funds by purchasing a certain pool of assets which will generate the “right” quantity of income to pay for the retirees.
The Mercer Pension Risk Exchange “empowers sponsoring employers to be more strategic and complicated within their approach,” said Jean-Philippe Provost, leader of Mercer’s Retirement Practice in Canada.
In an interview, Monteiro said the online marketplace is being developed due to strong demand from pension funds attempting to de-risk.
He also said the present product is “opaque without lots of visibility.” In 2015, $2.6 billion of premiums were paid to buy annuities with the market being of the similar size in 2014 and 2013. But the market is lumpy: in two months of 2015 (October and November), half the company for that year was done.
Monteiro said that when a Mercer pension fund client makes the decision to de-risk, information (on a no-names basis) is then put on the website. (Non-Mercer clients may also participate.)
Details would be provided about the quantity of pensioners the fund wants looked after, their ages, the payments they’re to get and also the workings from the plan.
“The insurers would have access to that and could be submitting bids regularly,” he explained. “The insurers would have full visibility from the pipeline. Now the insurers have no idea whenever 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 also to select which of them hit their sweet spots.
Monteiro argues the exchange will be good for pension funds because the prices on offer now vary depending on interest rates and the insurer’s appetite for business. “It’s great for plan sponsors because they will be able to time the transaction when the prices are favorable for them.”
