Pension (Buy-Out)

In a pension buy-out transaction:

  • The pension fund trustees buy a bulk annuity contract (insurance policy) from Rothesay Life that covers 100% of the fund pension commitments to its members.
  • After a transitional period of typically less than 2 years, the bulk annuity contract is broken into a collection of individual policies which are issued to each of the pension fund members.
  • Once the individual policies have been issued and given to the members, the trustees will no longer have the obligation to pay pension benefits and the fund can wind-up.

How it works

  1. The pension fund trustees buy a bulk annuity contract (insurance policy) from Rothesay Life by payment of a single up-front premium.

    The bulk annuity covers 100% of the fund pension commitments to its members.
  2. For an interim period of time, Rothesay Life pays to the trustees 100% of the current benefits payable to the fund’s members. During this period, the trustees will make any amendments to the benefits that are required (e.g. to make minor corrections to GMPs if required once they have been reconciled with HMRC) and to check for any missing members that are not insured.

    The responsibility for payments to the members remains with the pension fund in this interim period. Also, during this period, Rothesay Life would prepare to take on the administration of the benefit payments.
  3. After all the checks and corrections have been made, the bulk annuity contract is broken into a collection of individual policies which are then issued to each of the pension fund members i.e. each member becomes the policyholder of an annuity issued by Rothesay Life.

    After the policies have been issued, the trustees will no longer have the obligation to pay pension benefits. The corporate sponsor can permanently remove any pension obligation from its company accounts.
  4. The trustees can then complete a wind-up of the pension fund.

    Interim period

    How bulk transfer pension buy out works

    After issuance of annuity policies to members

    Rothesay Life transfer payment of 100% of benefits to pension members

The Transition Process

At Rothesay Life we define the transition process for a buy-out as starting at the point at which the bulk annuity contract is signed, and ending when the data cleanse process has completed and individual policies have been issued to members of the scheme.

During this time, a dedicated transition manager from the Rothesay team is allocated to the transaction to help all parties work through the necessary elements required in order to achieve a successful outcome for the scheme members.

Tasks undertaken during the transition phase are typically as follows:

  • A data cleanse to ensure that benefits initially secured reflect those properly payable from the scheme
  • If applicable, a premium adjustment based on revised data is calculated
  • The drafting and issuance of Individual Policies for the scheme membership reflecting the final benefits payable
  • Discharge notices issued by the Trustees of the Scheme
  • Set up of the benefits payable on our own member facing administration systems
  • Transfer of administration and payroll

We adopt a flexible approach to the overall process, driven by the particular needs of the individual client and the timescales will vary accordingly. To ensure certainty we underpin this flexibility with meticulous planning, attention to detail, and strict disciplines on the exchange of data.

Why it is secure

As Rothesay Life is an insurer regulated by the Prudential Regulation Authority (PRA), we must hold surplus assets (capital). These assets are monitored by the PRA to ensure we can meet the insured payments – even in an economic downturn. 

For examples of our buy-out solutions:

See our case studies.

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