The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:
THIS PRACTICE NOTE APPLIES ONLY TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES
The increase in the number of underfunded defined benefit occupational pension schemes over recent years has been mirrored by a growing interest on the part of sponsoring employers and trustees in methods whereby the financial risks and investment volatility associated with such schemes can be managed, and ideally minimised—a process commonly known as 'de-risking'.
Various methods of de-risking have been developed, and continue to be developed. For example, incentive exercises, such as enhanced transfer value exercises and pension increase exchange exercises, can be regarded as forming part of the arsenal of de-risking tools available to employers and trustees of defined benefit schemes (for more information on incentive exercises, see Practice Note: Pension scheme incentive exercises). However, there has been a growing use of various forms of insurance products in de-risking strategies, the most common options being pension buy-outs and pension buy-ins.
This Practice Note looks at the considerations which arise when contemplating buy-outs and buy-ins in respect of defined benefit occupational pension schemes.
For a summary of a typical buy-in/buy-out process and consideration of the content of the quotation and the policy terms and conditions, see Practice Note: Reviewing and negotiating buy-in/buy-out policies.
A pension buy-out exercise involves the trustees of a defined benefit scheme agreeing with an insurance company that
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