Despite the increase in activity in the risk transfer market, any schemes still have some way to go on their de-risking journey, according to a recent survey by pensions law firm Sackers.
In view of this it is urging schemes to plan ahead to help smooth this process.
Sackers partners and risk transfer expert Stuart O’Brien says: “Once a buy-in is complete, it is tempting for trustees to think that the hard part is over. But there may still be a substantial amount to do – any ‘tricky issues’ that were parked at the buy-in stage in the interests of locking in a good price will need to be dusted off and resolved.
“In our experience, discussing and preparing for a buy-out ahead of entering into a buy-in can help to smooth out some of the bumps in the road.
He said there are key areas for trustees and schemes to consider. These include ensuring the benefit specification is as comprehensive as possible and that everyone is clear on the scope of its review, as well as deciding how far back to look into the scheme’s history.
He adds” If some member benefits have been separately insured under individual policies, then it is always advisable to engage with the relevant insurers early on as these policies may need adjustment (eg for GMP equalisation) or possibly even surrendering, which can significantly delay a wind-up.
“Similarly, if there are quirks in the benefit spec or benefits which do not easily lend themselves to insuring, such as money purchase underpins or special benefit terms for members remaining in service with the employer, then time should be allowed to formulate a strategy to deal with these.
“This can take a while and may require a long lead-in to resolve with the scheme’s employer. Employers may also need to be involved in formulating transaction structures to manage the risk of trapped surplus.
O’Brien concluded: “A final area that could cause issues and delays with the winding-up process is that of employer indemnities on wind-up. Trustees will need to recognise that not all risks can ever be covered by insurance at buy-out so agreeing the trustee indemnity position with the employer upfront will help to inform their approach to buy-in.”
