Preparing for pension risk transfer

Preparing to transfer pension risk means you’ll have to focus on several key areas of your scheme. Getting to grips with some of the most complex areas of trusteeship all at once can seem daunting, but you’re not alone. We’ve worked with hundreds of trustees and whilst every scheme is different, there are common steps to take.

Finding out what other schemes are doing and have done to reach their end game can help you build your knowledge and confidence. As well as help you ask the right questions.

A growing market

Pension risk transfer is the long-term objective for a majority of pension scheme trustees. Based on market surveys, more than half of schemes are expecting to get there within ten years.

Why act now?

Increased regulation, volatile investment performance and uncertainty over future life expectancy make defined benefit pensions a difficult risk to manage on sponsors' balance sheets. This can affect the security of members' benefits. Transferring pension risk through a pension risk transfer exercise secures members' benefits and removes the risks from the pension scheme.

Preparation is key

In a busy market preparation is key, so even if you’re not quite ready to transfer risk to an insurer, making it part of your journey planning will help you when the time is right for you.

There are no shortcuts in preparing for a pension risk transfer transaction, and getting ready can take time. Once you’ve carried out your feasibility study and agreed that a buyout or buy-in is achievable it’s then all about the process.

In short, the more preparation you do, the stronger your position to:

engage with the insurance market
react quickly to take advantage of positive market conditions
achieve an accurate price
complete your transaction efficiently and effectively

Where to focus your preparation efforts

Governance

A strong governance structure is the backbone of any successful transaction. Setting up a joint working group with representatives from both the Trustee Board and scheme’s sponsor if necessary, can help the process run smoothly.

Objectives

It’s important that a clear set of objectives and a project timeline is agreed with the key stakeholders, including your advisors. This allows any issues or concerns to be addressed before seeking quotations.

Data

Finally, ensure that your data is accurate and complete as possible, along with a clear, legally reviewed, benefit specification. This will make sure you get an accurate quote - avoiding surprises. And demonstrate to insurers your commitment to completing a transaction.