Organising a pension scheme buyout – efficiently and cost-effectively

When the Alliance Trust Companies’ Pension Fund needed winding up, we used our specialist teams and strong project management to bring together every aspect of a highly complex process.

The need

The sponsoring employer, Alliance Trust, was looking to simplify its business and remove risk from its balance sheet while at the same time ensuring that the valuable pensions built up by its employees were fully secured for the future. The Company agreed that it would work with the Trustees to see if it was possible to achieve these aims at an affordable cost. Our first task was to establish whether the premium was one that the Company was prepared to fund. The trustees were also happy to buy out the scheme and wind it up, but their priority was  to make sure the benefits were fully covered and that they could be assured that they were protected against future data errors or member claims. They also needed the AVC policies and individual annuity policies to be assigned to the members.

Our approach

To obtain a reasonable estimate of the likely premium, we used our Bulk Annuity Pricing Model, which is based on indicative rates received from leading insurers. This helped the company and trustees make an informed decision to go ahead with obtaining buyout quotes from insurers.

"We prepared the quotation request documentation, and obtained quotes from three insurers. With the trustees, we selected the two most attractive insurers and asked them to take part in a second round of quotes. Following this, we chose Legal & General as the preferred insurer."

Next, we coordinated the tasks involved in paying the initial premium – including arranging the asset transition and taking legal advice from the scheme’s lawyers. In particular, the transfer of assets needed to be organised in a short timescale, and our specialist asset-transfer team made sure this was done. The premium was paid to Legal & General in June 2016, but there was still a lot to do before we could finish winding up the scheme. This included reconciling and equalising the GMPs, assigning the AVC policies and individual annuity policies, transferring the payroll to Legal & General, arranging member communications, agreeing the final insurance contract with Legal & General, and paying the balancing premium. The wind-up was completed in the summer of 2018.

The outcome

Our strategy of obtaining three quotations from insurers, along with detailed information in their proposals, helped us to run a competitive process where we could ensure the terms matched the trustees’ requirements. Most importantly for the company, this also reduced the pricing.

With time as another critical factor, and so many tasks to complete as part of the winding-up process, our strength in project management and detailed knowledge of the bulk annuity market were vital in keeping everything on track. Specifically, our approach of having specialist teams for asset transfers, GMP reconciliation, GMP equalisation and AVCs enabled us to save time by working on different parts of the project simultaneously.

Buyouts and buy-ins

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