Defined Benefit Pensions Monitor Q2 2023

Highlights from Q2

• Equity markets had positive returns while bond markets were mixed over the quarter
• Yields on long duration Euro sovereign bonds were unchanged.
• Long-term price inflation (20 year) expectations were unchanged at c. 2.6% p.a.
• Discount rates used for accounting disclosures fell by circa 0.1% p.a.
• 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.

Many DB pension schemes have taken 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 has been a marked increase in activity with over €500m of deals completed over the last 18 months and we expect to see continued growth in this area.

Running an Enhanced Transfer Values (ETV) or Retirement Transfer Options (RTO) 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.

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