• Hymans Robertson analysis shows DB Pensions Scheme member transfer values at buy out can differ by as much as 25% between different insurers
• Findings reveal commutation factors – the option for members to forgo some of their annual pension for an additional tax-free lump sum - can vary by over a third (35%)
• Cost should not be the only consideration for Trustees in order to achieve good outcomes for their members

The choice of insurer at buy-out can significantly impact the value of DB Pensions Scheme members’ benefits, with variations of up to a quarter (25%) in transfer values, analysis from Hymans Robertson has shown. The findings also reveal that the commutation factor – the option for members to forgo some of their annual pension for an additional tax-free lump sum - can vary by over a third (35%). With member transfer values and commutation factors differing so much, choosing the wrong provider could lead to members missing out financially.

The leading pensions and financial services consultancy is warning that it’s vital to consider a wide range of criteria when choosing a provider for a transaction, beyond simply looking at price. Considerations in the run up to buy-out, such as member options, must also be carefully managed to both protect members and to ensure the value of pension pots meets their expectation.

Commenting on the research and the need for Trustees to look at a variety of factors when selecting an insurer, Iain Church, Member Options and Risk Transfer Specialist, says:

“Post buy-out, members’ options will be calculated on terms set by the Trustees’ chosen insurer. Our findings highlight the extent to which these terms can differ between insurers, and the impact this can have on the quality of a member’s retirement. For example, a member exchanging £1,000 per annum of pension for tax free cash could lose out on up to £8,000 depending on which insurer their Trustees choose.

“Members must remain at the forefront of all decision making, and we urge Trustees looking to insure deferred liabilities to consider a range of criteria when selecting an insurer. In some instances, this could lead to Trustees selecting a more expensive insurer if more generous option terms result in members getting a better retirement outcome. Price is only one criteria, and it’s important for schemes to fully understand what they’re buying and whether members might stand to lose out.

“Trustees should also be aware of how their current option terms stack up against insurers. As schemes get closer to buy-out we encourage Trustees to consider insurer option terms as part of their regular factor review process. Whilst schemes closer to buy-out will tend to have higher factors than the average scheme, there can still be material differences. Trustees should aim to gradually transition towards insurer factors and avoid large step changes, to ensure members’ expectations for retirement are carefully managed.”

A copy of the Risk Transfer Report 2022 can be found here.