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Liability Monitor – September 2018


October 16, 2018

Willis Towers Watson’s Liability Monitor, provides an update on key liability indicators and is issued on a quarterly basis. The current edition deals with the position at 30 September 2018.

Highlights from Q3:

  • Euro sovereign and corporate bond yields increased slightly over the quarter.
  • We estimate that pension accounting liabilities have decreased by around 1% since 31 December 2017 (for a sample scheme with 20 year duration) as a result of movements in discount rates. 
  • Annuity prices decreased slightly over the quarter. 
  • The Settlement Premium was broadly unchanged over the quarter and remains outside the range where we see settlement of liabilities as an attractive option.

Other developments

Although high quality bond yields have been relatively stable over the year to date, we note that the European Central Bank’s bond buying programme is due to cease at the end of this year.  The current low bond yield environment means that pension liabilities for companies remain at elevated levels. 

Opportunities continue to exist for companies to manage these liabilities using a range of solutions including Enhanced Transfer Value (ETV) and Pension Increase Exchange (PIE) exercises.  ETV exercises allow companies to remove liabilities from their balance sheet at a cost which is lower than the accounting value of those liabilities.  PIE exercises involve offering members an option to exchange pensions subject to annual increases for a higher fixed pension and this provides companies with greater certainty of cost.

Budget 2019 had little impact on pensions.  The State Pension is due to increase from €12,652 p.a. to €12,912 p.a. in March 2019 which may be relevant for companies providing pension benefits that are integrated with the State Pension.

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.

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Liability Monitor – September 2018 PDF .3 MB
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