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A buy-in is where a premium is paid to an insurer to purchase an insurance policy to cover all or some of the pension scheme’s benefits. A buy-in is held as a pension scheme asset, and provides the trustees with a matching investment that covers all of the following risks: inflation, pension increases including caps and collars, longevity and investment.
A buy-out is similar to a buy-in, but the insurer takes on all the responsibility for paying the benefits to the members, and holds policies directly with the members, rather than with the trustees. A buy-out would typically be done as part of a scheme wind-up.
This is a major investment for a scheme and there is only one chance to get it right.
The member data needs to be high quality, and both the member data and benefit structure need to be very clearly explained to insurers to enable accurate quotations.
Insurers sometimes need to be selective on which projects they will quote on, with the best prepared schemes having the best chance of gaining insurer interest.
Scheme asset volatility relative to the buy-in/buy-out price needs to be carefully managed over a long period, from feasibility through to approaching insurers and transacting.
We have a specialist, experienced buy-in/buy-out team to support you:
100% of the cases managed in the 3 years to December 2017 successfully transacted with an insurer at the end of the quotation process.
Experience with a wide range of scheme sizes and complexities: As well as helping smaller, £50m schemes, our experience includes:
Managing a £200m medically underwritten buy-in (competitive tender) of the largest pensioner liabilities of a multi-billion pound FTSE 100 scheme.
Managing a full buy out of a segregated section of a multi-billion pound scheme.
Prior to approaching insurers, the specialist team advises on data “buy out readiness”, provides training, and ensures you have a realistic understanding of the likely cost of buy-in or buy-out. A detailed project plan is set up so that all parties understand the steps, timescales, and the key decisions that will be needed.
Our investment specialists are experienced in ensuring scheme assets are invested in a way to minimise volatility in the buy-in/buy-out funding level during the quotation process, and managing the payment of the premium in an efficient manner.
Our wider teams within Xafinity can provide additional resource to clients during the process if needed, for example project teams to help get your scheme data up to scratch, and to manage the scheme’s GMP reconciliation and rectification process.