Buyout guidance highlights importance of pension scheme preparation

Aon has emphasised the importance of being well prepared and agile when considering a buyout, as part of broader guidance on how UK pension schemes can reach the right state for a successful deal.

The guide, Getting to buyout - quicker, cheaper and with less risk, highlighted the final leg of the journey to buyout in particular as “difficult to navigate and surprisingly hazardous”.

In light of this, it stressed the importance of starting preparation early in order to help navigate and avoid these hazards, stating that it is important that a scheme's approach evolves to reflect the different risks seen in this section of the process.

It also stressed that the process should involve a holistic and integrated solution that considers all of the opportunities and risks, rather than focusing on investment in isolation, arguing that this, in turn, requires a strategic partner.

The guide follows previous research from Aon, which found that many pension schemes are now less than 10 years away from buyout and securing their members benefits.

Aon partner, Lucy Barron, commented: “Many UK pension schemes have made great progress on their journey - despite market volatility in 2020 - and are already close to securing buyout. However, the opportunities and risks are different in the final leg, so it is important that a scheme’s approach evolves to reflect this.

“Of course, there is much for trustees to do and all schemes will prepare for buyout in different ways, depending on their size, the issues they face and the amount of resource they have at their disposal.

“For example, for some schemes, delegating investment decisions to a fiduciary manager will allow the trustees to focus their time on getting the scheme ‘buyout ready’ while knowing they are achieving the returns needed."

She added: “Being well prepared and agile is crucial for navigating that difficult final stage. Step-changes in insurer pricing, assets failing to track and exceeding insurer pricing, or other risks such as increasing longevity or market volatility, can all blow pension schemes off course.

“But with careful planning and a holistic approach, schemes can navigate the path to securing members’ benefits quicker, cheaper and with reduced risk.”

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