Inflation Is the Leading Catalyst for Pension Risk Transfer Activity, MetLife Poll Finds

95% of plan sponsors report higher inflation is impacting their decision to de-risk, according to MetLife’s 2022 Pension Risk Transfer Poll

Nearly all defined benefit (DB) plan sponsors, 95%, say that higher inflation is impacting their decision to move forward with a pension risk transfer (PRT), including 50% saying it’s very impactful, according to MetLife’s new 2022 Pension Risk Transfer Poll, released today. The Poll found that inflation is the leading catalyst for DB plan sponsors to initiate a PRT.

“The economic landscape has shifted significantly since our last Poll and this change has led DB plan sponsors to take a closer look at their plans and pension risk transfer options,” says Elizabeth Walsh, head of Pension Solutions at MetLife. “Not only is inflation a factor, but other considerations, such as market volatility and rising interest rates, can potentially impact the decision to move forward with PRT.”

The Poll found macroeconomic concerns are prompting plan sponsors to hold steady or even accelerate their plans to de-risk. These include the geopolitical environment (96%), market volatility (94%), rising interest rates (91%), COVID-19’s transitional phase between pandemic and endemic (91%), and inflation (86%). In fact, according to the Poll, 9 in 10 plan sponsors (92%) say that continued rising interest rates will make them more likely to move forward with a pension risk transfer, including 43% who say a PRT is much more likely if interest rates continue to rise.

Facing this economic uncertainty, C-suites have taken a more active role in the management of their DB plans. Nine in ten plan sponsors (93%) say their pension receives significant attention from corporate management because of the financial effects that volatility and related risks place on their balance sheet/income statement.

Looking to the Future

“2022 is shaping up to be another record year for the PRT market and we don’t anticipate activity will slow down for the foreseeable future,” says Walsh. “It is clear from our Poll’s findings that pension de-risking is top of mind for many DB plan sponsors. In fact, 95% of plan sponsors say their company routinely weighs their DB plan’s value against the cost of the benefit.”

2021 was a record year for pension risk transfer industry with sales of $38 billion. According to the Poll, plan sponsors expect this level of activity to continue in the years to come. Sixty-four percent of plan sponsors predict the number of large PRT transactions will likely increase in the next five years and 18% believe the high level will stay the same.

Plan sponsors may be basing these predictions on their own intentions. The Poll found nearly nine in ten plan sponsors (89%) say they are likely to consider a PRT option from an insurance company in the next five years and 35% of this group say it’ll be within two years.

Increased Interest in Annuity Buyouts

When asked about the type of PRT activity plan sponsors will most likely use to achieve their de-risking goals, 57% say they will use an annuity buyout (including 28% who plan to use a combination of an annuity buyout and a lump sum). That’s up significantly from two years ago when 34% of plan sponsors said they would use a buyout only or buyout in combination with a lump sum.

Among those seeking an annuity buyout, many plan sponsors (62%) will secure a buyout for a retiree lift-out, while only 21% will secure a buyout for a plan termination and 17% don’t yet know their approach. Moving forward, a majority of plan sponsors will take a phased approach to de-risking. According to the Poll, two in three plan sponsors plan to tranche their transactions with a series of annuity buyouts (63%) rather than a single annuity buyout transaction (37%).

About the Study

The MetLife 2022 Pension Risk Transfer Poll was fielded between July 8, 2022 and July 15, 2022. MetLife commissioned MMR Research Associates, Inc. to conduct the online survey. Survey responses were received from 251 DB plan sponsors with $100 million or more in plan assets who have de-risking goals. This included 57% of plan sponsors who reported DB plan assets of $500 million or more.

About MetLife

MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management to help its individual and institutional customers build a more confident future. Founded in 1868, MetLife has operations in more than 40 markets globally and holds leading positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.

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