Defined Benefit Pensions Monitor Q1 2023

Quarter One - 2023

WTW’s Defined Benefit Pension Monitor provides a quarterly update on key market indicators for DB pension schemes.

You can read our report in the pdf below.

Highlights from Q1

• Equity and bond values continued to be volatile over the quarter
• Yields on long duration Euro sovereign bonds fell by 0.1% p.a.
• Long-term price inflation (20 year) expectations were unchanged at c. 2.6% p.a.
• Discount rates used for accounting disclosures were unchanged
• The Settlement Premium remains within the range where we see settlement of liabilities using annuity products as an attractive option.

Other developments

Irish occupational pension schemes were required to meet new IORPII requirements by 1 January 2023. In light of increased compliance costs due to the new requirements, many employers have been reviewing their pension strategy. In the last year, we have seen cases where employers have chosen to settle their DB pension liabilities, and other cases where employers operating more than one scheme have merged their schemes into a single arrangement.

Over the last year we have seen schemes taking advantage of the de-risking opportunities arising from the sharp increase in bond yields – these include reducing exposure to growth assets, implementing LDI solutions and annuity settlement of pensioner liabilities. Given the more attractive pricing of annuities, there was a marked increase in settlement activity during 2022 and further transactions this year including one for €80m completed in April.

Running an Enhanced Transfer Values (ETVs) exercise is potentially less viable following the increase in bond yields, but such exercises can still be considered as part of a long-term liability management strategy.

For more information

If you would like to discuss these issues in more detail please contact your WTW Consultant or a member of our Corporate Consulting Team.