Buying-in and buying-out of Defined Benefit schemes

Step 1: Agree a suitable timescale

A risk management exercise is often a long-term project requiring responsible proactive management.

If you can’t afford to buy out straight away, a managed delay can get you to full buy-out cost-effectively, allowing good investment returns and additional employer contributions to build up over time.

We’ll take the time to understand your scheme. We’ll talk with you about your budget, your investment risk and your membership profile. And then we’ll set a timescale that works for you.

Step 2: Set the right investment policy

Setting the right investment strategy goes hand in hand with agreeing a suitable timescale. It’s all about gauging how much your sponsor is willing to pay to control the risks involved in your scheme.

We will help you set the right strategy for you and your sponsor, and monitor it to make sure it remains appropriate for you.

With the Triggers tile of our
Client Hub, you can reduce your investment risks if you find yourself ahead of schedule. This will make it much more likely that you will hit your buy-out target date.

Step 3: Sort out your data

Most pension schemes have been in operation for decades, and administration errors will have accumulated in many schemes.

Many will have been administered by a series of providers, all with different practices. Legal views have changed too – and approaches taken in the 1990s may not be acceptable today.

Unfortunately, this means that almost all schemes hold incorrect member benefit data.

Your data must be accurate if you plan to undertake any risk transfer exercise, and any Guaranteed Minimum Pensions (GMPs) now need to be equalised.

If insurers aren’t confident
that the data is in good order
they can charge a significantly higher premium.

Step 4: Set up liability reduction exercises

Liability management exercises can reduce your bulk annuity costs. Making an offer to members prior to buy-out can make sense to all parties. It may be financially advantageous to members in certain circumstances, and will also keep your costs down.

To manage any reputational risk and to treat members fairly, it’s important to explain such offers clearly and discuss the issues openly. That way, members will only accept the options you offer if they are right for them.