Defined benefit schemes need to consider accounting implications when looking at buy-ins and bulk annuity purchases.
The warning comes from Hymans Robertson which says that it expects further growth in this market in 2023 as scheme look at different de-risking options. As a result, the pension consultancy firms says it is important to minimise these repercussions through early planning and company engagement.
A recent survey conducted by Hymans found that almost two thirds of trustees (61.3 per cent said that the accounting impact can negatively impact buy-in transactions with the potential for unexpected financial impacts.
Hymans Robertson partner and risk transfer specialist Lara Desay says: “It is clear that early engagement is vital to help avoid accounting issues de-railing risk transfer strategies and plans. The earlier a scheme can work with the sponsor to consider the implications, the more this can help minimise any bumps and hurdles as the transaction moves towards completion.
“The results from our webinar poll found that nearly two-thirds of trustees have examples where company accounting has impacted buy-in transactions, demonstrating that there is a clear need to minimise this risk.
“If corporates are able to clearly set out the objectives of a transaction, and document a strong rationale for their proposed accounting approach, this will facilitate any discussions with auditors. The more a company can forward plan, consider the accounting impacts and seek auditor agreement early to the proposed approach, the better positioned they will be able to minimise the chances of anything going wrong for the scheme’s buy-in project.”
