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PIC on how to get ‘buyout ready’

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23 Nov 2022

Mitul Magudia, head of business development at Pension Insurance Corporation (PIC) outlines how pension schemes can best capitalise on improved funding levels to secure a buyout.

PIC Mitul Magudia

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Mitul Magudia, head of business development at Pension Insurance Corporation (PIC) outlines how pension schemes can best capitalise on improved funding levels to secure a buyout.

PIC Mitul Magudia

Pension funds find themselves better funded than ever due to the significant increase in gilt yields. Lane Clark & Peacock’s (LCP) analysis at the end of October suggested that almost one in five schemes are now funded on a buyout basis, with funding levels up 15% on last year.[1]

Alongside this, market volatility has brought into focus the security that buyout can offer sponsoring companies, scheme trustees and members. Trustees gain the benefit of knowing that members’ benefits are guaranteed, and corporate sponsors can insulate themselves from future cashflow crunches. 

The result of this is that the buyout market will likely be the busiest it has ever been in the next few years: LCP predicts that there could be more than £200bn of liabilities transferred to insurers in the next three years, when volumes were around only £30bn in each of the past two years. The market is also expected to remain strong beyond this. In June, before the spike in gilt yields, Hyman Robertson estimated that around £1trn of pension scheme risk would be insured or transferred to third parties by 2031.[2]

Given the volume of deals expected, one of the issues that trustees are predicted to face is competition for insurer capacity, so what can trustees do to get ‘transaction ready’? How best can you prepare for a prospective buyout?

There a several considerations to make in preparation and, as I’ll explain, the best time to start is now.

Scheme data

One of the barriers that many schemes face is inadequate data. Inaccurate records of scheme members’ benefits make a prospective buyout less attractive to insurers and there will be an associated premium in the buyout price for taking on the risk. 

Schemes considering a buyout should take steps to fill in as many gaps in their data as possible: establishing what information is missing and where is an important step. For example, the marital status of scheme members can be an area where data is patchy, and this can impact the price that insurers can offer. Alongside this, a full legal review of the scheme benefits to clear up what their members are entitled to will also help insurers effectively price the buyout.

Having member information in good order can help convince an insurer that the buyout will be an efficient transaction and will lower the cost of the transaction for the scheme.

Impartial advice

Schemes should get a pragmatic adviser for the commercial transaction. Buyouts are complex so seeking advice is important to ensure the right strategy is in place to achieve it.

There are many businesses that can support in this regard. They will often be able to assist across many areas including governance, investment strategy, liability management and actuarial advice.

With the right adviser, schemes can better understand the costs of a buyout and build a plan that suits the scheme to get there. This could include a phased approach, with many schemes opting to offload part of the risk initially, through a buy-in, as the first step for a full buyout. 

Effective governance

There are many elements to governance that can make a potential buyout more attractive to an insurer. These range from having the right advisers, whether commercial, legal or actuarial, through to having a professional trustee sitting on the board with a track record of going through the de-risking process.

A major improvement can be made through creating the right governance structure. Establishing a buyout sub-committee, meeting on a regular basis, can ensure that the trustee board is able to respond to the stages of the buyout effectively. Quarterly trustee meetings will not be enough. 

Start early

Finally, start now. The schemes that have got their internal house in order ahead of time, are those that are most likely to be attractive to an insurer.

A buyout is a process and those that start the process earlier will be more successful. Schemes should be prepared to execute as soon as economic and market conditions are favourable to them. This means being ready to transact ahead of time.

Buyouts are likely to be in high demand in the next few years. Although the best approach for schemes will depend on their individual circumstances, whether that is the size of the scheme, its investment strategy or its available resources, taking steps to prepare sooner not later is good advice for all.

So, by having a clear picture of gaps in your scheme’s data, ensuring you have expert advice available, by taking care to create the right governance structure, and starting as soon as possible will help you get ‘buyout’ ready and give you the best chance of managing the cost of a transaction effectively.


[1] Market for transferring pension schemes to insurers set to ‘skyrocket’ as combined scheme liabilities tumble by close to £1 trillion in a year | Lane Clark & Peacock LLP (lcp.uk.com)

[2] Buy-in and buy-out volumes of £27.7bn in 2021 – Hymans Robertson

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