Bulk Purchase Annuity Definition

Bulk Purchase Annuity

Companies and other pension plan sponsors use bulk purchase annuities to remove some of the pension fund liabilities from their balance sheet. When a company enters into a bulk purchase annuity agreement with an insurance company, the insurer effectively assumes financial responsibility for assuring a steady stream of retirement income payments to the company’s pension plan members. By doing this, the pension plan sponsor is transferring to the insurance company certain risks related to investments, inflation and longevity. The insurance company receives a premium which is typically a combination of cash and plan assets.

Bulk Purchase Annuity Market Booming as Pension Deficits Swell

The UK pension market is in tough shape post financial crisis. According to a Bloomberg article, "about 87 percent of the U.K.’s 7,400 final salary pension plans are in deficit following the financial crisis." This crisis offers an unprecendented opportunity for companies that insure the pension liabilities of private corporations through bulk purchase annuities. “The bulk-purchase annuity market is going to continue to be a good market because companies want to get their pension...

Glossary:

Bulk Purchase Annuity

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