July 2026 Pension Risk Transfer Pricing Update

Executive Summary

As we enter the second half of 2026, annuity purchase interest rates continue to hold steady, remaining at their highest levels in over a year. At the same time, the Pension Risk Transfer market continues to evolve, fueled by strong insurer participation, growing interest within de-risking strategies and favorable market conditions. As these conditions persist, plan sponsors that enter the market sooner will be better positioned to capitalize and secure the best pricing opportunities and elevated interest rate dynamics.

LIMRA recently released the first quarter update, reporting that U.S. Pension Risk Transfer buyout and buy-in sales total approximately $3.8 billion, down 47% from the first quarter of 2025. According to LIMRA, this decline is largely attributed to deal timing, as significant share of transaction activity shifted into the fourth quarter of 2025.

Economic uncertainty often causes organizations to delay major corporate strategic initiatives, but today's market conditions suggest that defined benefit (DB) plan derisking should be the exception. Despite geopolitical tensions such as the conflict in Iran and broader economic pressure, strong equity markets, historically high pension plan funding levels, and elevated interest rates have created an attractive environment for pension risk transfer (PRT) transactions. At the same time, many plan sponsors have postponed derisking efforts in 2026, which has led to reduced transaction volume and increased competition among insurers for new business. This combination of favorable funding conditions, lower pension liabilities, and aggressive insurer pricing presents a great opportunity for plan sponsors to reduce pension risk. Rather than adopting a "wait-and-see" approach, plan sponsors should evaluate whether current market conditions provide an opportunity to accelerate their derisking strategy before insurer capacity tightens and market dynamics shift.

Pricing Update

Moving into the third quarter of 2026, annuity purchase interest rates continue to hold at their highest level in over a year. As highlighted in the Pension Finance Update, continued equity market growth, combined with modestly higher interest rates, has driven ongoing improvements in pension funding throughout the year.  These steady monthly gains have strengthened many plan sponsors’ funded positions, creating favorable opportunities to pursue pension de-risking initiatives.

Historical Activity

The 10-year and 30-year Treasury rates also continued their stable momentum, beginning the month at 4.48% and 4.97%. Compared with July 2025, the 10-year Treasury rate increased by 22 basis points, while the 30-year Treasury rate rose by 19 basis points. As interest rates remain elevated, the Pension Risk Transfer market continues to demonstrate strong participation and interest. Historically, the third and fourth quarters are the busiest with insurers often reaching capacity constraints and scheduling conflicts with new cases. It is strongly encouraged for plan sponsors to enter the marketplace early to secure purchase dates and maximize insurer participation.

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, the spreads of Annuity Plan 1 and Annuity Plan 2 both narrowed  For Annuity Plan 1, the spread is -1.12% while Annuity Plan 2’s spread is approximately 2.91%. 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.

Uncertainty Creates Opportunity

During times of economic uncertainty, many companies tend to pause capital investments and strategic initiatives until market conditions become clearer. Many defined benefit (DB) plan sponsors take the same approach with pension derisking and assume their plan should wait just as other corporate initiatives do.  However, a DB plan is driven by a unique set of market factors, and periods of uncertainty do not necessarily create unfavorable conditions for derisking. In fact, delaying derisking can sometimes mean missing one of the most attractive opportunities to reduce pension risk.

In early 2026, geopolitical pressures including the conflict between the United States and Iran and the current administration's use of tariffs prompted many plan sponsors to adopt a "wait-and-see" approach toward derisking their DB plans. While that response may seem prudent, the current market environment tells a different story. Despite the aforementioned factors, equity markets have remained near record highs, pension plan funding levels are among the strongest they have been in years, and interest rates continue to remain near 15-year highs. All these factors have created a PRT market condition that lowers annuity premiums for plan sponsors and makes derisking now more favorable than ever.

Another key factor is the slowdown of the PRT market itself. As plan sponsors have postponed derisking in 2026, insurance companies are not expecting to reach their full capacity for the year. Instead of reducing their appetite for new business, many insurers have responded by becoming increasingly competitive in their pricing. The combination of strong plan funding levels, lower liabilities resulting from higher interest rates, and more aggressive insurer pricing has created a window of opportunity that many plan sponsors may not have anticipated.

While uncertainty often encourages organizations to delay major decisions, today's DB plan market presents a compelling case for doing the opposite. Waiting for greater economic clarity could mean competing in a more crowded market with less favorable pricing and reduced insurer capacity. For plan sponsors considering their long-term pension strategy, today's environment may represent an opportunity to lock in favorable outcomes and accelerate their derisking objectives rather than postpone them.

For additional information or inquiries 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.