Cost, capacity and lack of interest at top of schemes’ buyout worry lists
It’s often called the ‘gold standard’ for defined benefit (DB) schemes – especially by insurers. However, only 48% of DB schemes are targeting buyout, according to research by consultancy Hymans Robertson.
Even those who are going for buyout are worried about the process. Over two in five say they are most concerned about a lack of insurer capacity or interest in their scheme (45%), accounting implications (45%) and the cost (41%).
Leonard Bowman, partner and head of corporate DB endgame strategy at Hymans Robertson, urged schemes to keep their options open: “Although there is uncertainty as to what the pension landscape will look like over the next few years, there is also opportunity in relation to new solutions coming to market and evolving government policy incentivising run-off strategies.
“Companies intending to pursue an irreversible insurance buy-out transaction in the short- to medium-term may wish to consider keeping their options open, given that the Mansion House reforms could open up new value creation opportunities, such as lowering the funding bar for extracting surplus or reducing the 35% tax charge on surplus refunds.”
Before committing to a buyout, companies should take a step back and reevaluate their endgames so that they align with broader corporate objectives, concluded Bowman.
