Pension schemes must prepare as early as possible to avoid lengthy delays in the move from buy-in to buy-out

The earlier that DB pension schemes prepare in advance of buy-in, the more likely they are to avoid costly delays of moving to buy-out, and ensure a high-quality member experience, says Hymans Robertson in its latest paper released today. Research undertaken by the leading pensions and financial services consultancy found that around three-quarters (76%) of professional trustees are experiencing delays in their buy-out and wind-up processes following a full scheme buy-in. The average delay was reported to be six months, with some delays lasting more than two years. The firm warns that delays can be avoided with the correct groundwork in place. 

Despite innovation and increased capacity from insurers to meet the growing demand in recent years, moving from buy-in to buy-out requires a lot of resources and can often take several years. A DB pension scheme’s trustees and sponsors often underestimate the amount of pre-work required for buy-out, adding pressure to a system where delays are becoming more commonplace. 

A particular bottleneck for insurers processing buy-ins and converting them to buy-outs is around data. This is an essential part of the workflow for insurers who must process all member benefits after the irreversible transfer of administration and ultimate buy-out of the pension scheme. Data processing is also crucial to a member’s experience in the buy-in phase (and not just after buy-out). Poor data could lead to delays in issuing member quotes and can result in members making a claim if the quotes lead to incorrect benefits. To help combat these delays, getting started as early as possible with clear plans to address the scheme’s data in place is crucial.

Commenting on why pension schemes should start planning their buy-out as early as possible, Christine Cumming, Head of Buy-Out and Wind-Up Transition Services, Hymans Robertson, says: 

“We are seeing a strong move towards buy-out for pension schemes, and our research showed that of the schemes we surveyed, those that had completed their final full-scheme buy-in, 97% are now looking to move to buy-out within the next 5 years. With demand rising and delays becoming increasingly common in the buy-out market, it’s crucial that schemes prepare early to get ahead of the curve. The trend in the market is clear to see; in 2020-2022, around 50 buy-ins converted to buy-outs each year. This rose to 75 in 2023 and was more than 100 in 2024. 

“Insurers have innovated to meet this demand in several ways. These include expanding post-transaction teams, investing in technology, and reviewing governance structures. They are continually exploring areas where they can improve their processes. One message we hear loud and clear from insurers is that pension schemes have not done enough to prepare to move quickly from buy-in to buy-out. Good quality data is a key area which can have transformational benefits for the process. We have heard anecdotal evidence from insurers of multiple changes, in some cases as many as 30 – prior to a final data set being agreed. This has adverse impacts on both the timing and costs, as well as potentially leading to knock-on effects for members. 

“Specialist advisers have the relevant experience in the buy-out market and understand the needs of both schemes and insurers. Combined, this can be a powerful tool when schemes want to progress through the buy-out process at pace. Having advised schemes, both large and small, through numerous buy-outs, we regrettably see delays becoming the norm in the buy-out market where preparation was not started early enough. Getting good quality advice – and taking advantage of this knowledge - is more important than ever for a scheme looking to buy out.”

A copy of the paper ‘Navigating capacity constraints to ensure a smooth and successful buy-out’ can be accessed here.

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