Innovative solution makes pension risk reduction possible for two unrelated plan sponsors.
WHAT: Mercer is lead advisor on the largest annuity deal ever done in Canada, totaling $530 million. This unique transaction reduces the cost and risk of two separate and unrelated Canadian organizations’ pension plans by combining their annuity purchases.
WHY: Defined benefit pension plans in Canada are facing many challenges and organizations are looking for help mitigating them. Canadians are living longer which means that pensions are paying out for more years post-retirement than ever. Volatile markets, low interest rates and inflation uncertainty add additional risk. Innovative solutions are available to manage or transfer these risks and Mercer is leading the way.
WHO: Manuel Monteiro, Leader of Mercer’s Financial Strategy Group and lead advisor to one of the plan sponsors: “This innovative transaction allowed two of our clients to execute their de-risking strategy while achieving significant cost savings – tens of millions of dollars – that would not have been available if the annuities were purchased separately. This annuity purchase transferred the investment, longevity and inflation risk present in each plan to an outside insurer, at an attractive price.”
Benoit Hudon, Mercer’s Retirement Innovation Leader and lead advisor to the other plan sponsor: “Canadian plan sponsors have been hesitant regarding inflation-linked annuities due to concerns about the purchase costs. However, as this transaction demonstrates, there are innovative solutions that can be tailored for the unique situations of individual pension plans of all sizes. These solutions allow Canadian organizations to reduce risk while ensuring comfortable and well-deserved retirements for their employees.”
The two plans involved in this transaction provide pensions that are partially indexed to inflation. Each plan sponsor had previously concluded that purchasing indexed annuities would be too expensive. Combining the two plans into a single transaction resulted in lower overall inflation risk exposure to the insurer, which allowed them to provide pricing that was much more attractive to both plan sponsors.
With this transaction, Mercer is continuing to demonstrate its market leading expertise in pension risk reduction and sophisticated pension transactions, advising on annuity transactions totaling more than $1 billion in 2015. Today’s announcement follows last year’s $5 billion pension longevity insurance transaction with Bell Canada, which remains the first and only pension longevity insurance transaction completed in Canada. These transactions position Mercer as the clear leader in the industry.