Beyond volatility: smart moves for DB plans in uncertain times
The first six months of 2025 have been a roller coaster of tariff uncertainty, geopolitical conflict and market volatility. It’s no wonder that pension risk transfer (PRT) took a backseat as plan sponsors focused on their core businesses. In fact, Sun Life estimates that PRT volumes in the first half of 2025 are down about 60% compared to 2024.
PRT market volume at June 30 ($B)
Sources:
2025: Sun Life estimates
2024: LIMRA
This presents a strategic opportunity for nimble plan sponsors. Reducing pension risk and locking in strong funded positions – especially in the face of continued uncertainty - is smart. And a slower PRT market means that insurers are motivated to transact - potentially leading to attractive terms and pricing.
This favourable pricing can already be seen in annuity yields. As of March 31, 2025, the yield on non-indexed annuities is above that of a duration-equivalent passive corporate bond portfolio, even before adjusting for risk and expenses. That is, plan sponsors are getting longevity and investment risk transfer for free!
Yield on annuity1 |
4.59% |
Yield on bond portfolio2 |
4.41% |
|---|---|---|---|
|
|
Risk/expense adjustment3 |
(1.00%) |
|
|
|
3.41% |
1Using the March 31, 2025 medium duration annuity proxy spread, published by the CIA, and CANSIM V39062 yields at March 31, 2025.
2Based on a blend of the FTSE Canada All Corporate Bond Index and the FTSE Canada Long Term Corporate Bond Index at March 31, 2025 to achieve the same duration as the membership group used to determine the CIA medium duration proxy.
3Sun Life estimates as of March 31, 2025.
This opportunity also applies to plans with CPI-linked benefits. Sun Life estimates that CPI-linked PRT volumes in the first half of 2025 are down about 80% compared to 2024. With real return bonds (RRBs) no longer being issued, it’s unclear how much longer RRBs will be available to support insurer pricing. This year could be the right time for plan sponsors to secure competitive pricing for CPI-linked annuities.
CPI-linked annuity market volume at June 30
Sources: Sun Life estimates
Plans with unique features - like active members, large numbers of deferred members, complex indexation, or illiquid assets - can also benefit, since insurers have more flexibility and capacity this year. Speaking with consultants and insurers, plus getting sample pricing, can help plan sponsors see what’s possible.
Bottom line: The slow market is creating a compelling environment for annuity purchase - one that may not be here long. Decisive plan sponsors can reduce pension volatility and secure benefits at attractive prices. Reach out today to connect
Plan sponsors are taking action
With many risks and challenges in managing a DB pension plan, many plan sponsors are taking action to de-risk their plans and transfer pension risks to an insurer.
