Reviewing and negotiating pension buy-in and buy-out policies
Produced in partnership with Mark Ridler of Hill Dickinson LLP
Reviewing and negotiating pension buy-in and buy-out policies

The following Pensions guidance note Produced in partnership with Mark Ridler of Hill Dickinson LLP provides comprehensive and up to date legal information covering:

  • Reviewing and negotiating pension buy-in and buy-out policies
  • Typical buy-out process
  • Quotation
  • Policy terms and conditions

Although each insurance company will have its own policy documentation, they usually include similar processes and provisions. Typically, the documentation will be made up of:

  1. a quotation

  2. a policy document setting out the terms and conditions, and

  3. an acceptance document

Guidance from the Financial Conduct Authority, in the form of PERG 10.3 Q13, advises that one-off purchases of annuities selected by pension scheme trustees are highly unlikely to constitute ‘day-to-day’ management decisions under the Financial Services and Markets Act 2000 (FSMA 2000), and therefore trustees will be able to choose the annuity provider without being authorised under FSMA 2000 but should only do so after taking the advice of a suitably qualified and experienced financial adviser.

This Practice Note summarises a typical buy-in/buy-out process and then considers the content of the quotation and the policy terms and conditions.

For further information on the considerations which arise when contemplating buy-outs and buy-ins in respect of defined benefit occupational pension schemes, see Practice Note: De-risking—pension buy-outs and buy-ins.

Typical buy-out process

A typical buy-out process may be as follows:

  1. the trustees provide details of the benefits to be bought-out for quotation purposes to one or, preferably, several insurance companies

  2. the insurance company issues a quotation setting out the benefit specification upon which the quotation is based and its terms and conditions

  3. negotiations on the terms—the