Pension Risk Transfer
\ˈpɛnʃ(ə)n\ \rɪsk\ \ /transˈfə\
The act of transferring risk from a pension plan to another institution, usually an insurance company.
The act of transferring risk from a pension plan to another institution, usually an insurance company.
The most common form of pension risk transfer is to buy annuity contracts for specific participants with an insurer, removing the longevity, interest rate and investment risk associated to the covered participants. Such transactions are known as buy-outs or buy-ins. Alternatively, a pension plan could look to transfer individual risks on their own. For example, a plan could enter into a longevity swap to remove their longevity risk, while retaining their investment risk to take advantage of higher returns associated to riskier assets.