To give you the best possible experience, this site uses cookies. If you continue browsing, you accept our use of cookies. You can view our privacy policy to find out more about the cookies we use.


November 2022 Annuity Purchase Update

• Average annuity purchase rates exceeded 5% for this first time ever observed- with the average duration 7 annuity purchase rate at 5.20% and average duration 15 annuity purchase rate at 5.16%.

• High stock market returns and high interest rates drove pension funding status to improve substantially this past month.

• Average annuity purchase rates have skyrocketed over 300 basis points in the last twelve months, marking the lowest annuity purchase price we have recorded year to date.

• At the close of the third quarter, the Pension Risk Transfer market observed roughly 230 placements in over $45B in premium

• 2022 is on track to being a record setting year for the Pension Risk Transfer Market. The vigrousness of market activity will likely carry into 2023 so plan sponsors should consider entering the market place sooner rather.


As mentioned in the Pension Finance update, stock market returns were strong last month resulting in the best month year to date for pension finance. The upward trend in the average Annuity Purchase Interest rates continued this past month. In the last twelve months, average rates skyrocketed over 300 basis points with the average duration 7 annuity rate at 5.20% and the average duration 15 annuity rate at 5.16%. This is the first we have recorded rates over 5%. The Federal Reserve has increased interest rates throughout 2022. Given there is no direct relationship between this jump in rates and annuity purchase interest rates, there is no guarantee that the Federal Reserve increasing rates will further reduce annuity purchase costs. Market activity has exceeded expectations. Year to date, there have been more than 230 placements totaling $45 billion in premium. Total market will likely surpass $50 billion in premium at the close of 2022. The market rush is expected to continue into 2023. It is crucial for plan sponsors to enter the market place sooner rather than later to exploit favorable pricing.

Year to date, we have observed an upward trend in annuity purchase interest rates and treasury yields. As seen in the graph below, rates today are the highest we have observed since 2016. Since January 2022, rates have more than doubled. Annuity purchase interest rates and treasury yield rates vary over time. The 10 year treasury rates correlate with the duration 7 annuity purchase interest rates. Similarly, the 30 year treasury rates correlate with the duration 15 annuity purchase interest rates. Given the rapid increase in rates and surge in market activity, a timely entry into the market place is critical for plan sponsors to receive favorable pricing. Implementing a Pension Risk Transfer strategy can help a plan sponsor fulfill organizational goals, including reducing volatility in financial disclosures due to volatile interest rates.

Top 3 ways PRT is lowering plan costs

The graph below displays the difference between annuity purchase price above GAAP projected benefit obligation (PBO). We refer to GAAP PBO and accounting book value interchangeably. In November 2022, the spread for Annuity Plan 1 and Annuity Plan 2 narrowed, suggesting an opportune time for annuity transactions. The spread for both plans remains lower than twelve months ago. An increase in annuity purchase rates inversely lowers annuity purchase prices relative to accounting book value. Please note, that the below PBO calculations exclude future overhead costs paid by plan sponsors to retain participants in the plan. Administrative expenses and PBGC premiums are examples of these overhead costs. Future overhead costs would narrow the spread, though the extent is plan specific.

The graph below represents the annuity purchase price relative to GAAP projected benefit obligation (PBO) of the actual retiree cases placed by October Three Annuity Services thus far in 2022. We refer to GAAP PBO and accounting book value interchangeably. Year to date, the annuity purchase cost was consistently between 94% – 104% of the pension accounting value with the average at 100.67%. Keep in mind that the below PBO calculations excludes fees.

Annuity purchase cost can shift from month to month. Given the consistent increase in annuity purchase interest rates, we have seen a general downward trend in cost in 2022. Since last month, The purchase price for Annuity Plan 1 decreased -2.26% and Annuity Plan 2 decreased 4.39%. Since January 2022, the purchase price for Annuity Plan 1 dropped 22% and the purchase price for Annuity Plan 2 reduced by 35%. An early entrance to the insurance market is a vital component of the planning stage because of the consistent short-term volatility of annuity pricing. By connecting with an annuity search firm early on, plan sponsors can capitalize on favorable fluctuations in a volatile market.

Additional Risk Mitigation Strategies to Consider

Annuity purchases for plan sponsors do not need to occur on an all-or-nothing basis. Many plan sponsors can benefit by purchasing annuities even for a subset of plan participants. This is especially true for retirees with small benefit amounts. In 2022, we have seen an increase in the number of lift-out transactions. We expect to see even more the remainder of the year. Plan sponsors pay PBGC premiums for participants that do not vary based on the size of the participant’s benefit. For retirees with small benefit amounts, the PBGC premium overhead burden is substantial and can be eliminated through an annuity purchase. Retiree carveouts have controlled a vast majority of market activity in 2022 so we are expecting to see more plan terminations in 2023.

Have a pension risk transfer need but not sure where to start? See our article, What to Look for in An Annuity Search Firm.

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 two 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 includes 70% retirees and 30% deferred and has a liability duration of 15 years. 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.

What to Read Next

November 2022 Annuity Purchase Update

Annuity Purchase Interest Rates continue to soar as rates surpassed 5% in November.