Risk Transfer Exercises

As defined benefit (DB) pension schemes mature, many employers are approaching the endgame of their pension journey: transferring liabilities to an insurer through a buy‑out or buy‑in arrangement. These risk transfer exercises involve moving responsibility for paying members’ benefits from the scheme to a third‑party insurer in return for a premium.

For employers, this can be a transformative step. Once completed, pension liabilities come off the balance sheet, and the sponsor is discharged from future contribution obligations. For members, benefits become payable directly by an insurer and fall under the protection of the Financial Services Compensation Scheme (FSCS).

What are risk transfer exercises?

Risk transfer exercises are transactions where a DB pension scheme transfers all (or part) of its liabilities to an insurer. Common types include:

• Buy‑ins: The scheme purchases an insurance policy that covers some or all liabilities but remains responsible for paying members
• Buy‑outs: Liabilities are fully transferred to the insurer, members are issued individual policies, and the scheme ultimately winds up.

For many employers, a buy‑out represents the final step in de‑risking their DB scheme, removing long‑term uncertainty, ensuring benefits are secured and providing financial and operational closure.

Why this matters

A risk transfer exercise can have significant commercial implications:

• It permanently removes DB liabilities from the employer’s balance sheet
• It provides financial certainty and protects against future funding volatility
• It involves complex trustee, actuarial, legal and regulatory considerations
• It requires robust data, clear governance and careful negotiation with insurers
• It has communication and reputational implications for the employer and trustees.

Getting the process right is essential to securing the best pricing, reducing risk and ensuring a smooth transition for members.

Key consideration for employers

To ensure a successful risk transfer exercise, employers should consider:

• Scheme readiness: Are benefits correctly recorded and paid? Are rules up to date?
• Data quality: Insurers require accurate, complete data to price the transaction
• Member impacts: Communications must be clear, timely and legally compliant
• Wind‑up requirements: Understand the governance, reporting and trustee protection steps required after liabilities transfer
• Surplus strategy: Agree how any surplus will be managed or distributed.

Early preparation and advice significantly improve market engagement and pricing outcomes.

How can we support you?

We help employers and trustees navigate transactions safely, efficiently and with confidence, focusing on risk reduction, data accuracy, governance and securing the best possible terms for the scheme and its members.

Navigating a buy‑out process is complex. We guide employers and trustees through every stage, providing specialist advice on:

• Preparing the scheme for buy‑out: Reviewing the scheme’s historic operation, confirming benefits have been correctly administered, preparing a benefit specification matrix and drafting any rule amendments required to proceed.
• Structuring and negotiating the buy‑out: Supporting insurer selection, negotiating contractual terms and advising on surplus management, including how any financial uplift is allocated between sponsor and members.
• Member and operational considerations: Preparing clear member communications, supporting the discharge of DC / AVC benefits, and helping manage complaints or dispute risks during transition.
• Winding up the scheme: Advising on triggering and managing the wind‑up process, securing trustee indemnities and releases, completing final reporting and documenting scheme closure through a deed of termination.

Across every stage, we deliver pragmatic, commercially focused advice that helps employers reduce risk, streamline the process and secure the best possible terms.