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What's the difference between a buy-in and a buyout?

The key aim for you as a Trustee is to safeguard the payment of your members' pensions now and in the future, but longevity, inflation and investment risks mean that goal isn’t as straightforward as it seems. This risk can impact the funding position of the scheme on a regular basis. That’s where transferring pension risks through a buy-in or buyout can help.

Both a buy-in and a buyout are types of insurance policy that can be bought by trustees to remove some or all of the risks associated with running a defined benefit pension scheme. For a one-off payment we guarantee to pay the pensions for each member covered by the policy. The type of policy that is appropriate for you will depend on your de-risking journey and objectives. We’ll look at the differences below.

A buy-in

This is an insurance policy bought in the name of the Trustee and held as an asset of the scheme. You’ll remain responsible for the administration and ongoing payment to members.

You decide which liabilities and benefits you want to be included in the buy-in. This is typically a section of the scheme’s membership, such as pensioners. We then calculate a premium based on the members and the benefits to be secured.

Once the deal is agreed and the premium payment has been made, a policy between PIC and the Trustee is in place.  We make regular payments to you that cover the pension payments secured under the buy-in.

You keep:

  • paying pensions to your members
  • responsibility for the administration

PIC covers:

  • longevity, inflation or investment risk
  • any future pension payments covered by the buy-in

A buyout

A buyout is the ultimate goal for many Trustee Boards and the final stage of transferring pension risks. It offers a full and definitive settlement for the pension scheme and allows the Trustee to wind up the scheme through the purchase of individual policies for the scheme’s members.

All members of the scheme will be covered by the buyout.

Just like a buy-in, we calculate a premium based on the membership and benefits to be secured. For a buyout the scheme will need to be fully funded which may require a cash contribution from the sponsor.

Once the policy terms are agreed and the premium is paid all responsibility for pension payments, communications and ongoing administration passes to us. Individual policies are issued to members, and the scheme can then be wound up.

PIC covers:

  • longevity, inflation or investment risk
  • any payments to members
  • any administration or communication responsibility

We also:

  • transition your members across to become our policyholders
  • guarantee to pay the pensions of our policyholders which are backed by a regulated level of capital
  • deliver outstanding customer service 

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