Defined Benefit Pensions Monitor Q3 2023

Highlights from Q3

• Equity markets had slightly negative returns while bond markets fell sharply over the quarter
• Yields on long duration Euro sovereign bonds increased by around 0.5%
• Long-term price inflation (20 year) expectations were unchanged at c. 2.6% p.a.
• Discount rates used for accounting disclosures increased by circa 0.5% p.a.
• The Settlement Premium remains within the range where we see settlement of liabilities using annuity products as an attractive option.

Other developments

Many DB pension schemes have taken advantage of the de-risking opportunities arising from the sharp increase in bond yields over the past two years – 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 (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.

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