Pension risk transfer: buy-ins, buy-outs, longevity swaps and consolidators

A risk transfer project could help secure certainty about your scheme’s future liabilities and member benefits.

Life as a pension scheme sponsor or trustees can be open to volatility driven by market movements, life expectancy changes and changing regulations. Pension liabilities can be a drag on the value and prospects of many businesses, particularly with increasing scrutiny from the Pensions Regulator, and Trustees will want to ensure full security for their pension scheme members’ pensions. But when is the right time to securely transfer risk out of your scheme and what’s the best way to do it?

We’ve worked with many schemes to identify the right way to proceed for their specific needs and circumstances – every case is different. With our expertise and experience, and underpinned by our award-winning technology, you can significantly reduce, and ultimately remove your pension risk.

Choose the right advisor

PwC have a team of dedicated and experienced pension risk transfer specialists having completed £20bn worth of deal outcomes for over 50 clients including the following landmark transactions which we have led in the last two years:

  • £4.4bn buy-in for the Airways Pension Scheme, including novation of existing longevity swaps
  • £3.8bn full scheme buy-in for the ASDA Group Pension Scheme
  • £600m partial buy-out for the ITV Pension Scheme
  • £150m ‘PPF+’ buy-out with innovative structure to ensure price certainty in the future
  • £200m buy-out integrated with member options where buyout was achieved within 9 months of buy-in transaction
  • A suite of 5 buy-in transactions over 2 years leading to a £1bn partial buy-out
  • Over 10 buy-outs for schemes under £50m

When should you think about pension risk transfer?

Do you have a target timescale for reaching ‘full funding’ in your defined benefit pension scheme?

Do you know how you will manage investment, inflation and longevity risk up to that point?

Are you ready to act when market pricing creates opportunities for a pensions risk transaction?

Some trustees believe they must wait for their schemes to achieve full funding before a risk transfer project will be viable. Not necessarily: we’ll work with you during the journey, identifying opportunities created by changes in risk transaction pricing, and ensuring you can act quickly when the moment arises.

“The demand for insurance and consolidation solutions is growing, with each year seeing a new record level of transactions completed. In this demand-heavy environment a new approach is needed - it is the schemes that understand market dynamics, engage with insurers early, and who are best prepared for a transaction, who will be able to ensure the right transaction at the right time.”

Steven Dicker, Partner, PwC

Five best practices for successful risk transactions

Decide on an end-game strategy

Insurance and consolidation solutions are only one part of a potential end-game strategy. We help our clients consider a wide range of solutions including analysis of what type of transaction is appropriate at which time, and how to get there if you are not ready yet.

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Get current and accurate pricing data

Scheme trustees and sponsors must be able to make these significant decisions on the basis of accurate information. Using market-leading technology through Skyval Insure we can secure initial prices from insurers for your scheme within a week, helping you to identify opportunities and act on them. In today’s busy market this information advantage is critical in timing the market approach to find the right insurer with the right price for your transaction.

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Get “trade ready”

We can help you get “trade ready”, with your data and legal documents in a good state and with a clear idea of your objectives and price targets for a transaction. This will put you at the front of the queue when insurers in an increasingly busy market are prioritising their deals and importantly avoid last-minute surprises on cost and timing of the final transaction.

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Identify innovations that could reduce cost

The pension risk transfer market is still evolving, with new innovations generating potential cost savings for pension schemes. We have a strong track record of helping pension schemes to access new, cost-efficient solutions across buy-ins, buy-outs and longevity swaps.

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Buy-ins and buy-outs

Buy-ins and buy-outs are similar contracts where for a single premium paid by the scheme, the insurer is contractually obliged to pay members’ benefits in the future. Investment, inflation and longevity risk are removed for the members covered under the policy.

Under a buy-in, once the premium is paid by the scheme the insurer is then responsible for paying the monthly pensions to the scheme who in turn pay their pensioners. A buy-in is an investment contract and the trustees still retain the legal responsibility to pay members’ benefits.

Under a buy-out, the insurer would go further and take legal responsibility for paying monthly pensions directly to each individual scheme member. The pension scheme has then transferred all liabilities to the insurer and is able to wind-up.

Longevity Swap

For some pension schemes, a buy-in or buy-out may not be planned for at least 5 years. Those schemes can use investment markets to manage their investment and inflation risks but are exposed to members living longer than expected. Over 30 pension schemes in this situation have entered into longevity hedges in recent years.

A longevity hedge (or “longevity swap”) is an insurance contract where an insurance counterparty agrees to cover the monthly pension payments for scheme members in exchange for regular payments from the pension scheme based on a fixed life expectancy assumption for each member. In practice, it is the net difference between these two amounts which is paid each month.


A consolidator can fall into two types:

  1. A ‘superfund’ ; a single pension fund backed by capital from investors, into which other pension funds can transfer their liabilities and assets, removing the risk from the company balance sheet. The assets required to be transferred are typically above the cost of running a self-sufficient scheme but below the cost of a full buyout. However, as consolidators sit outside the insurance framework, the protection offered to members is less than in a buy-out situation.
    These new developments, whilst still being finalised in regulation, could provide an attractive option to schemes who are not within reach of buy-in or buy-out in the short to medium term.
  2. Defined Benefit Master Trusts; These arrangements allow pension schemes to transfer to a consolidated trustee, administration, investment and actuarial platform although the link to the sponsoring employer remains. These can prove attractive to scheme sponsors who seek efficiencies in the time and cost of managing a pension scheme

Contact us

Nikhil Patel

Nikhil Patel

Insurance and Consolidation Specialist, PwC United Kingdom

Tel: +44 (0)7808 105973

Jani Singh

Jani Singh

Insurance and Consolidation Specialist, PwC United Kingdom

Tel: +44 (0)7525 283107

Matthew Cooper

Matthew Cooper

Consolidation market lead, PwC United Kingdom

Tel: +44 (0)7841 492483

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