Hybrid Buyout Solution

A hybrid scheme is a defined contribution (DC) pension scheme with a defined benefit (DB) underpin. Most commonly, this occurred when the scheme contracted out of the state pension scheme at some point in the past.

THE ISSUE

Since July 2014, the underpin element of a hybrid scheme may be subject to a different legislative and regulatory regime than the DC benefits. Consequently, the costs associated with running the scheme will have increased as, for example:

  • A scheme actuary must be appointed and triennial scheme funding valuations carried out
  • A Pension Protection Fund (PPF) levy will be payable
  • Administration costs may have increased

A number of these hybrid schemes are relatively small and will pay disproportionately high running costs. Others represent sections of larger schemes, which complicate the overall process of settling scheme liabilities.

THE SOLUTION

If you have a DC scheme with a DB underpin, you have to overcome major obstacles to buy out and wind up your scheme. These include

  • finding an insurer willing to complete a buyout transaction for what have traditionally been relatively small and complex DB liabilities,
  • finding a (separate) insurer to take on the residual DC assets, especially where these are also small in value and therefore difficult to place, and
  • addressing the issue of uncertainty surrounding the equalisation of Guaranteed Minimum Pensions (GMPs).

We have developed a solution that provides you with opportunity way to discharge the liabilities and wind up your scheme, thereby removing ongoing funding risks and the increasingly high costs of regulatory compliance.

Our robust and clearly defined process consists of six key elements to enable you to achieve your objective:

  • Feasibility study providing you with a clear understanding of the potential costs of proceeding with the solution versus the ongoing costs of running the scheme
  • Guidance in respect of GMP equalisation, with an option to seek indemnity insurance
  • Optional legal review pre-packaged, cost-effective legal review and opinion from legal experts, CMS
  • Data cleanse and preparation including GMP reconciliation against HMRC records and member benefit self-certification
  • A single insurer Legal & General, able to transact on both the DB and DC elements of the scheme
  • Management and completion incorporating all wind-up actions by our dedicated team
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HYBRID BUYOUT CASE STUDY

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