I cannot see a happy end to this story – either in America – or in Britain, where much of annuity insurance written is backed by American insurers and American private credit.
In America, annuities do go belly up and need to be bailed out. Here is a comment following Dean McClellan’s post and the article that he quotes
The guarantees that back American annuities that insure people’s “wage in retirement” are financial instruments which are backed up by private credit which is itself a guarantee of payment made by financial promises that obscure rather than transparent.
Cracks have started to appear in the private credit and no doubt cracks will follow in American insurance writing American annuities.
In the UK we consider L&G, Standard Life, PIC, Just and Utmost are British insurers insuring British pension schemes providing British people with “wage for life” pensions.
But these British guarantees are no longer British. They are backed by American guarantees from American insurers backed up by American private equity.
So when Dean McClelland points us to an article that is written for Americans and has the headline
We should sit up and ask us what this means for the UK buy-out/buy-in Bulk Purchase Annuity Market. I read in all the surveys by the consultants involved in this BPA that the slowdown in business written since 2024 is because of the recovery of funding in our private funded DB pension funds.
I suspect that many funds are looking to run on because they see surpluses as a treasure to be enjoyed. But I suspect that there is also a sneaking suspicion that the offers from the majority of insurers tendering to buy-out their pensions are not as strong as we might suppose.
As always in these things , we will only discover if what I , Dean and others are saying has got substance in years to come. But that won’t stop me and others pointing to risks that do not need to be taken. We no longer need to buy out DB pensions , indeed many schemes that have bought-out or are in the process need not have done at any time. If they had listened to First Actuarial and the very few like Keating pointing to the madness of mark to market accounting as a way to value liabilities, then we would never have had this bonanza for insurers.
If we’d stuck with “Best Estimates” we’d still have had funded pensions which were invested for long-term growth, rather than a reliance on American insurers, reinsurers and their private credit.
This makes the case for SIPP and drawdown very well for those who have made the sacrifice during the accumulation phase.
The gap in goods and services trade grew 24.4% from the prior month to $88.6 billion, according to the US authorities. More concern for markets.
However retrospective taxation of pensions underline that “safe” and pensions are becoming increasingly of concern. We should encourage individual choice
Sorry. In the states, the state insurance guarantee associations have been inadequate for decades.
That said, in the past, the state insurance guarantee associations have been up to the challenges that they faced. In my own household, we were impacted by the failure of Baldwin United – where the state insurance commissioners from Indiana and Texas took the lead (as best as I can remember). And, while we did not receive the full benefit of the insurance company promise on our 403b investment, the 3 year resolution did allow for a modest return and we didn’t lose any principal.
Here’s a simple example – that some of the issues the guarantees face are structural. In the 401k plan that used to have my lifetime of savings, some of those funds were invested in a guaranteed investment contract (comparable to a stable value fund) – along with 10,000+ other participants, including thousands and thousands of retired participants.
The assets in that fund easily exceeded $1B. That annuity was not an allocated contract, so the $250,000 limit didn’t apply individually to each participant. Instead, it is subject to the unallocated annuity rules, held as a pooled group contract by the retirement plan rather than individual certificates, so, as best as I know, Ohio doesn’t have a different aggregate limit.