Pension schemes preparing for buyout should have a contingency plan in place in case they miss their opportunity when market conditions are right to complete the transaction, Aon Hewitt has advised.

Aon Hewitt partner Paul McGlone explained: “It would be surprising if some schemes are not disappointed when they try to secure a buyout with an insurer.They will be competing for what may be limited opportunities in the market and not every scheme is going to be able to complete their buyout plan at the time that they want.

“It’s therefore imperative that schemes have a contingency plan so that they can run if needed for a number of years on a low-risk basis until the right opportunity emerges. This would mean keeping the scheme in a holding position until it can capture the opportunity to buyout when all the factors are right, but in which it doesn’t incur unnecessary investment risk or employer contributions. Key to this will be not only appropriate asset allocation but an efficient benefits delivery model that can ensure the scheme is ready to buyout when conditions change.”

A recent Aon Hewitt conference found that 23 per cent of attending schemes currently expect to secure benefits with an insurer by 2020. According to McGlone, there is over £500bn of liability in small to medium-sized schemes, so if 23 per cent of those schemes plan to be fully secured by 2020, there would be approximately £20bn of placements to insurers for each of the next eight years. “That is possible, although it would mean a big step-up from the current level of activity."

However, past experience has found that the buyout market is prone to a surge in demand as schemes all like to buyout when market conditions are correct, causing bottlenecks, he added.

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