The webinar revolved around annuities and investments
Insurer Sun Life had its team dedicated for defined benefit solutions host a webinar about how three inflation-linked annuities can reduce the risk aligned with defined benefit (DB) pension plans, the trends seen in the group annuity market in 2023, and the use of private debt in investment portfolios driven by liability.
Some of the insights shared during the “Focus 2024: a bright path forward” webinar stated that the group annuity market has a big room for growth. The market notably held a strong momentum as about 140 DB plan sponsors made the choice of de-risking in 2023. Brent Simmons, senior vice president and head, defined benefit solutions, said that the market still has a great potential for growth.
“One indication of the growing interest in annuities is that there are $18 billion in deals currently being discussed. While not all these deals are expected to transact in 2024, gradual annual market growth is expected,” said Simmons.
“It’s exciting to see large employers with sizable pension plans take action, such as Ford of Canada. The popularity of group annuities will continue to rise as more organizations realize the benefits of de-risking,” he added.
Inflation-linked annuities were also found to be gaining attention as it had transactions amounting to $925 million.
“To put this into perspective, there were more inflation-linked annuity deals in the last 3 years than there were in the 8 preceding years. This is no surprise given rising inflation rates. The evolution and sophistication of inflation-linked solutions also drove the market,” said Simmons.
“In 2022, the Government of Canada announced its decision to cease real return bond (RRB) issuance. This will impact the supply of RRBs, which are the most efficient way to back inflation-linked annuities. So, while RRBs are still available, it’s unclear how long this will last,” he added.
During the webinar, Senior Director, Client Solutions at SLC Management Neil Tai-Pow said that fixed income portfolios needed to generate sufficient yield in order to keep up with liability growth as well as diversify credit exposure as fixed-income plays a bigger role in plans.
Having a private fixed-income when it comes to private credit will be handy as it can give higher yields, and improved diversification, liability-hedging capabilities, and favourable downside risk profiles.
The development of a governance structure beginning with education was emphasized to be important as Rob Turpin, vice president, finance and chief financial officer at the Ottawa International Airport Authority, said that it can create an environment of trust as well as better understanding of the process of de-risking.
“When everyone is well-informed, plan sponsors, in partnership with consultants and insurers, can ensure a successful transaction and secure pension benefits for plan members,” said Simmons.
The importance of being transaction-ready through having necessary documents, resources, and processes was also noted as it can be used to capitalize on the conditions of the market.
“I’m always fascinated by the complexity, detail and hard work that goes into an annuity purchase. The Canadian market has a bright path forward. I’m excited for the future and continuing to help organizations de-risk their Canadian pension plans to secure member pension benefits,” said Simmons.
