The small scheme journey to buy-out
With improvements in pension scheme funding levels and attractive pricing, the number of employers looking to pass the risk and volatility associated with running their DB pension scheme onto insurers is on the rise.
An attractive offering for smaller schemes
Buy-out is the ultimate goal for most pension schemes. This is where an insurer takes on the responsibility of paying out pensions to members, along with the associated investment and inflation risks, and risks of members living longer than expected.
Total pension scheme buy-in and buy-out volumes are expected to reach an all-time high this year, with demand from pension schemes now outweighing insurer’s capacity to write business at their best prices. As such, insurers have more choice regarding which schemes they wish to offer their best terms to. Appetite to secure benefits for smaller schemes is particularly limited, given the opportunities for insurers and larger transactions.
Master trusts are a great way of giving smaller schemes access to the same opportunities as larger schemes, at an attractive price. Grouping sections together in one trust provides insurers with a more attractive proposition, leading to lower buy-out costs. Subsequent wind-up costs are also reduced because fixed costs are shared amongst the employers.
This grouped, streamlined approach can generate multiple savings for smaller schemes.
Find out how these savings are achieved by contacting us.
Bridging the gap to buy-out
For many schemes, buy-out will still feel like a distant prospect. However, there are a number of steps you can take to ensure your scheme is in the best possible position to buy-out when the time is right:
- Engage with insurers early
Sharing your data with insurers early will make the buy-out process more efficient. Insurers will favour schemes they are familiar with and who have set clear pricing targets.
- Data cleansing
Completing Guaranteed Minimum Pension (GMP) reconciliations, collecting spouse existence data, and determining spouses’ pension on death of pensioner members, all decrease insurer’s prices and make quotes more accurate. Being prepared and ready will move you up their pecking order.
A buy-in is where a proportion of the scheme’s liabilities are covered by an insurer, but the scheme retains ultimate responsibility for paying out pensions to members.
Carrying out a series of strategic buy-ins, to reduce some risk when the opportunities arise, as well as developing relationships with insurers, will put you in a stronger position for when the time is right for buy-out. If insurers know you, your data, benefits, and you have a track record of completing transactions, you will be their favoured customers.
Ready to take the next step?
For further information on risk transfer and the journey to buy out, please contact us.