As the pensions landscape changes and more schemes look to buy-out, the sheer volume of demand will mean that insurers will simply be unable to quote on every case that comes their way. Trustees of smaller schemes may find that insurers are not interested in them and/or not willing to offer terms, at least not until they have taken steps to make their scheme as attractive as possible to the insurer and demonstrate that they are serious about doing a deal.

So, what are the key issues that trustees of small to medium sized schemes should consider when starting to engage with insurers? What gives maximum ‘bang for buck’ when trying to make a scheme attractive to a prospective insurer?

• It’s never too early. Even two to three years out from buy-out, schemes should look to start discussions with insurers to understand the process and begin to plan for the end game. Insurers want to help make the process as smooth as possible for both trustees and sponsors, and will be more keen to work with those that come to them early in the process.
• Get to know the key issues involved. Two of the key areas of the insurer triage process are:
• Affordability – do trustees have an idea of the buy-out premium and how this will be paid? Are the assets liquid? Will the scheme need a sponsor contribution? Is the sponsor on board?
• Scheme design – make sure there is a documented benefit specification which has been signed off by the scheme’s legal advisers and is in line with the scheme’s rules. If the scheme has any unusual benefits, engage early on with the insurer regarding potential solutions to help achieve the most competitive buy-out premium possible.

Some practical actions trustees of small to medium sized schemes can take when starting to plan for the end game include:

• Developing a clear and well documented journey plan that has a defined time horizon and keeping this under continual review
• Working in collaboration with the insurer, the sponsor and the respective advisers. Deals can be derailed at the final hurdle if all parties are not on the same page
• Identifying the risks involved, taking steps to mitigate these and/or putting in place contingency plans
• Understanding the buy-out premium, which can be estimated by the scheme actuary
• Identifying any additional contributions that may be required, and how and when these will be paid
• Implementing an investment strategy incorporating de-risking actions
• Formalising the benefit specification, and making decisions on any discretionary benefits
• Cleansing the scheme’s data to improve data quality.

Planning ahead and engaging at an early stage with insurers, sponsors and your advisers will give trustees of small to medium sized schemes credibility, and help make them attractive to insurers when seeking buy-out terms in what will surely be a very challenging market.