October 2025 Pension Risk Transfer Pricing Update

Executive Summary

Annuity purchase interest rates experienced a notable decline from September to October. While the marketplace exhibits volatility, plan sponsors should maintain motivation to de-risk. Powerful equity market returns are mitigating recent headwinds, offering a critical window of opportunity to lock in at what could be the best prices for the remainder of the year. With insurers under pressure to meet 2025 targets after a slow first three quarters, Q4 pricing has become increasingly competitive—giving Plan Sponsors a timely opportunity to lock in attractive rates.

Falling Treasury rates signal a tightening PRT environment, as lower yields continue to put downwards pressure on corporate bonds, which are a key driver in pricing annuities. Market volatility continues to persist, but insurance company participation and pricing remain competitive. The window for plan sponsors to act is narrowing. Timely action is critical for those looking to de-risk and avoid the risk of significantly higher premiums ahead.

In case you missed it, October Three’s 2025 Mid-Year Pension Risk Transfer Report was issued. This report features expanded market data and the results of a comprehensive survey of insurers active in the PRT space. It offers valuable insights into transaction activity during the first half of 2025 and provides an informed outlook on what to expect in the PRT market for the remainder of the year.

Pricing Update

The graph below shows there was a decrease in the annuity purchase interest rates for both the duration 7 rate and duration 15 rate this month. From September to October, the duration 7 rate declined from 4.80% to 4.65% while the duration 15 rate dropped from 4.92% to 4.78%. Despite the downward movement in annuity purchase interest rates, both duration 7 and duration 15 rates remain higher than they were 12 months ago. Overall, the Pension Risk Transfer (PRT) market continues to exhibit positive activity and plan sponsors should remain motivated to de-risk their plans and secure what may be the most favorable pricing window remaining in 2025. Due to strong equity performance in the marketplace, pension finances have benefited from double-digit stock returns that have offset the small decreases in interest rates, as noted in the Pension Finance Update. Take action now is critical to secure the most attractive pricing likely available for the remainder of 2025.

Historical Activity

The 10-year treasury rate, which corresponds to the duration 7 annuity purchase interest rate, dropped to 4.12% this month. Similarly, the 30-year treasury rate, which correlates with the duration 15 annuity purchase interest rate, also decreased to about 4.75%. Seeing a decline in these treasury yields often drags down corporate bond yields, which are used by insurers to value pension liabilities and make decisions with pricing for transactions. The PRT marketplace continues to face volatility following the recent Fed rate cut, with expectations of another to come. As we approach the end of 2025, market conditions are offering favorable pricing as insurers are pricing aggressively following the lull of the first three quarters of the year. A brief window of opportunity still remains for plan sponsors. Prompt action is encouraged so plan sponsors can lock in current rates and take advantage of competitive pricing.

Annuity Costs Relative to GAAP

The graph below shows the spread between the annuity purchase price and the GAAP projected benefit obligation (PBO), also referred to as the accounting book value. This month, Annuity Plan 1’s spread decreased to 0.26% while Annuity Plan 2’s spread increased to 5.16%. As annuity purchase rates increase, purchase prices drop relative to the PBO. Please note that the PBO figures shown do not include future overhead costs—such as administrative expenses and PBGC premiums—that plan sponsors would incur by retaining participants in the plan.

Closing Out 2025: Key Actions for Plan Sponsors in the Final Quarter

With just one quarter remaining in 2025, Plan Sponsors aiming to complete an annuity purchase before year-end must act quickly—time is running out. Unlike 2024, the first three quarters of this year saw a lull in Pension Risk Transfer (PRT) activity. Both the number of transactions and total premium placed were significantly lower than in prior years. However, recent market volatility is pushing more Plan Sponsors to consider de-risking strategies. Market movements last Friday alone could have wiped out nearly 4% of plan funding—had the market not rebounded. As we’ve entered Q4, there has been a noticeable uptick in PRT activity, with Plan Sponsors racing to meet their de-risking goals before year-end. Encouragingly, capacity constraints do not appear to be an issue. In fact, many insurers are actively bidding, and we're seeing increased insurance company participation. Carriers are also pricing very competitively, still striving to meet their 2025 sales targets—making this a potentially favorable window for Plan Sponsors. It is critical for Plan Sponsors to engage a PRT consultant now—even if a 2025 transaction isn’t currently in the plan. Early engagement allows time for data cleansing and preparation and helps ensure that de-risking objectives are clearly defined and aligned with the optimal strategy moving forward.

For additional information or inquires about the pension risk transfer marketplace, contact Mark Unhoch: munhoch@octoberthree.com.

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*October Three advises plan sponsors through every step of the Pension Risk Transfer (PRT) process. Through long established relationships with insurers in the PRT marketplace, October Three collects annuity purchase rates for Duration 7 years and Duration 15 years on a monthly basis. We have constructed 2 hypothetical annuity plans which have been valued using the latest mortality tables and mortality improvement scales. Annuity Plan 1 contains retirees only and has a liability duration of 7 years. Annuity Plan 2 contains 70% retirees and 30% deferreds and has a liability duration of 15 years. Monthly annuity rates are determined by taking the average Duration 7 and Duration 15 interest rates provided from the insurers. Annuity Plan 1 was valued using the average of the Duration 7-year interest rates collected from insurers and Annuity Plan 2 was valued using the average of the Duration 15-year interest rates collected from insurers. Using the collected annuity purchase rates and 2 hypothetical annuity plans, we have produced the following graphs representative of actual PRT market activity and the corresponding impact on pension plans.