Pension funds hope for better deal in de-risking marketplace

A pension risk exchange – a web-based marketplace that aims to bring those defined benefit pension plans looking to purchase de-risking annuities with those that provide such products C is here in Canada.

This week saw the unveiling of 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 developed for the U.K. and the U.S. C is anticipated to achieve that goal by bringing openness towards the market. Information is going to be provided and market participants can 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 because of the dialogue between the fund and also 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’s 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’s a more dynamic process than the current static process,” he added.

The marketplace is not live: for that to happen those pension funds wanting to purchase annuities is going to be required to register indicating what they’re seeking.



Insurance companies, the entities that offer the annuities that look after so-called longevity and investment risk for that pension fund may also be required to sign up. Insurers give peace of mind towards the pension funds by buying a particular pool of assets which will generate the “right” amount of income to pay the retirees.

The Mercer Pension Risk Exchange “empowers sponsoring employers to become more strategic and sophisticated in their approach,” said Jean-Philippe Provost, leader of Mercer’s Retirement Practice in Canada.

In an interview, Monteiro said the internet marketplace is being developed due to strong demand from pension funds wanting to de-risk. 

He also said the current system is “opaque without lots of visibility.” In 2015, $2.6 billion of premiums were paid to buy annuities using the market being of the similar size in 2014 and 2013. But the market is lumpy: in 2 months of 2015 (October and November), half the business for the year ended.

Monteiro said that when a Mercer pension fund client makes the choice to de-risk, information (on a no-names basis) is then put on the site. (Non-Mercer clients can also participate.)

Details would be provided about the quantity of pensioners the fund wants taken care of, their ages, the instalments they are to receive and the workings of the plan.

“The insurers would have access to might would be submitting bids on a regular basis,” he said. “The insurers might have full visibility from the pipeline. Now the insurers have no idea whenever a pension fund is interested buying an annuity until it comes to market,” he explained.

But having info on the pipeline of funds wanting annuities, Monteiro said, will allow the insurers to plan and to pick and choose which ones hit their sweet spots.

Monteiro argues the exchange is going to be good for pension funds because the prices on offer now vary depending on interest rates and also the insurer’s appetite for business. “It’s great for plan sponsors because they can time the transaction once the prices are favorable for them.”