What is a pension buyout?
A pension buyout is a type of financial transfer allowing companies to completely wind up their pension schemes by paying a fixed amount to free themselves of any liabilities associated with the funds. The funds are transferred to the hands of an insurance group.
Where have you heard about a pension buyout?
Since 2006 onwards, pension buyouts have become increasingly popular in the United States and United Kingdom. One of the largest recent pension buyouts was in 2016, when Legal & General completed a £1.1 billion pension buyout for the Vickers Group Pension Group.
What you need to know about a pension buyout.
Pension buyouts are becoming increasingly popular for scheme members because final salary schemes are proving more costly for companies to fund due to many schemes being in deficit. In addition, people are living longer and there has been a decline in returns from low-risk assets.
Once a pension buyout has been complete, the insurance company becomes responsible and pays out the pension, protecting scheme members from the risk of benefits reducing for whatever reason. Pension buyouts work because insurance companies have much higher capital requirements than most employers.