Trigger Based Monitoring

WHAT IS A TRIGGER BASED BUYOUT?

In this type of buyout, trustees and sponsors of defined benefit (DB) pension schemes agree on a set of financial circumstances which, if met, would ‘trigger’ the completion of a buyout transaction. The trigger could be selected based on the value of the Technical Provisions for the relevant group of members, the yield on assets being used to fund the transaction or any other assessment of the value of risk being covered.

HOW DO I KNOW IF THE TRIGGER I’VE SET IS REASONABLE?

You wouldn't want to commit to a firm trigger for a transaction if you believe it could result in insurers quoting a higher price than they would quote otherwise. So we’ll help you to identify a suitable trigger price and also assess whether this may be achievable in the current market conditions.

4 STEPS TO MAXIMISE THE CHANCE OF A DEAL

PriceSelect a trigger price and focus on one which is ‘good enough’

Don’t simply aim for the ‘best price’. It is an unknown and uncertain target and can slow things down as sponsors and trustees need to agree whether the price quoted is acceptable for the transaction to proceed.

InsurerSelect one insurer

Identify the insurer who is most likely to be able to deliver the trigger price. This will significantly improve the efficiency of the process and insurer engagement. It will also give the insurer the ability to access higher-yielding assets, which could make it more likely that they are able to hit the trigger.

PreparePrepare

Do as much work as you can in advance. This might include:

  • selecting the assets to be used to pay the premium (and even starting the disinvestment process if this is likely to be complicated),
  • signing-off the benefit specification, and
  • agreeing contractual terms in advance.

ReassessIf necessary, reassess the trigger

As required (and dictated by market events and insurer developments), reassess whether a change is necessary to maintain a trigger aligned to market dynamics.

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TRIGGER BASED DEALS & MONITORING CASE STUDY

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