Get advice on full or partial buy-outs and buy-ins from our specialist pensions team. Contact us today for more information.
Who do Pitmans' Buy-out & Buy-in lawyers work for?
There are several different types of arrangement commonly classed as "buy-outs" or "buy-ins". The legal structures and effects of the different arrangements vary considerably, but the main reason for using them is to transfer inflation risk, longevity risk and investment risk to a third party. We act for employers and trustees in this area.
Do Pitmans' Buy-out & Buy-in lawyers have any particular areas of expertise?
Traditionally, a buy-out involved the trustees of an occupational pension scheme securing all the scheme's accrued benefits with an insurance company. The trustees might buy individual annuity policies in the members' names, or they might buy a policy in their own name or names and subsequently transfer the benefit to the members.
Such buy-outs are usually carried out as part of the process of winding up the scheme. Once the annuities are in the names of the members, then provided the appropriate formalities are followed, the trustees will have no further obligation towards the members in respect of the benefits bought out.
A buy-out provides a clean break from the responsibility and cost of running a final salary scheme and removes pension liabilities from the employer's balance sheet.
A partial buy-out is similar to a full buy-out, except that only part of the accrued benefits are bought out (for example pensions in payment, or benefits for members over a particular age). The scheme may not be wound up, however, until all accrued benefits are bought out with annuities or transferred to another scheme.
Buying out pensioner or deferred liabilities can enable the employer to focus attention (and cash) on providing benefits to active members or other current employees.
Full or partial buy-in
The trustees buy an annuity in respect of some or all of the accrued benefits. The policies are held in the trustees' name as an investment of the scheme. The trustees remain liable to pay members' benefits as they fall due and the sponsoring employer remains on the hook for making up any shortfall. In practice, the actual payment of benefits may be outsourced to the insurer, and there should be no shortfall unless the insurer fails.
The benefits paid under the annuity policy belong to the trustees, not the members in respect of whose benefits they are calculated, and could be used to support other members' benefits if the scheme were to wind up with an insolvent employer. This feature means partial buy-in is generally used in place of partial buy-out to prevent any inequality of treatment arising between different classes of member.
Trustees may decide to buy-in some or all benefits as part of their investment strategy. Reasons for doing this may include concerns about the employer's covenant, or a desire to take advantage of particular conditions in the annuity market at that time, and to de risk the scheme. See also Trustees’ Powers and Duties.
Why choose Pitmans' Buy-out & Buy-in lawyers?
Pitmans’ Pensions lawyers can:
- Review the benefit specification to confirm it accurately reflects all the scheme benefits
- Review the scheme rules and identify any discretions the trustees have regarding benefits
- Review the scheme rules and check that the trustees have all the necessary powers to implement the buy-in or buy-out
- Review the contractual terms of the buy-in or buy-out policy to ensure that it covers all the correct scheme benefits, complies with overriding legislation and discharges the trustees from any further liability including negotiating the terms with the insurer
- Review communications to members
- Assist with due diligence regarding the chosen insurer