Pension schemes should plan ahead to avoid delays during “the home stretch” of their risk transfer journeys, LCP has argued.

LCP highlighted the increasing need for dedicated, experienced practitioners to help insurers and pension schemes “battle” with resource and data challenges when moving schemes from buy-in to buyout and wind-up.

The firm said that insurers’ buyout pipelines are seeing exponential growth as its survey revealed that twice as many schemes are moving to buyout this year than in 2022.

It added that the future pipeline also looked busy, with the number of schemes aiming to make this transition likely to double again in 2025 and beyond.

LCP noted that the key drivers were the “significant” increase in buy-in activity, including a three-fold increase in the number of under £100m deals over the past three years, combined with a trend towards schemes completing full buy-ins.

Indeed, full buy-ins now represent over 95 per cent of all transactions and involve “significantly” more implementation work than pensioner-only buy-ins.

Due to this, there has been a “huge” growth in workloads for insurers’ post-transaction implementation teams and scheme administrators alike, with LCP estimating that 50 per cent of schemes are now fully funded or within 5 years of being fully funded on buyout.

LCP said this was "certainly" an area for longer-term focus and investment but argued that “significant” work was needed after completing a full buy-in, to prepare to buyout and wind-up a scheme.

There are multiple workstreams and decisions involved in post-transaction work which require input from insurers, administrators, legal advisers, actuarial teams, trustees, and sponsors, as well as effective member communication.

The firm suggested that the first step after a full buy-in was to complete a full data cleanse, involving completing outstanding guaranteed minimum pension (GMP) projects and resolving any benefit and legal uncertainties.

It argued a subsequent move to buyout and wind-up involved further work, for example in relation to additional voluntary contributions (AVC), defined contribution accrual, historic annuities, and settling small benefits.

In addition to this, it also includes ensuring a smooth handover of administration and payroll to the insurer, as well as the possibility of surplus assets to manage.

LCP said this was a complex process that could take years to complete.

Indeed, delays could mean a scheme losing its position in the insurer’s implementation queue, putting the overall timetable at risk, and creating tension between different parties.

Furthermore, the firm pointed out that the industry face several key challenges in this area.

These challenges include insurers working hard to build up their teams with the right skills and experience to cope with the queue of schemes that want to transition to buyout and then wind-up.

Furthermore, the growing number of schemes presents a challenge, as each scheme is “unique”, therefore the exact route to buyout will vary for each of them and bespoke solutions will be needed for scheme-specific challenges.

Meanwhile, LCP also said that missing data cleanse deadlines with insurers could also put the project timetable at risk.

It stated there was a heavy reliance on administrators' data cleanse work alongside other demanding projects, such as pensions dashboards, as well as day-to-day administration.

Given this, LCP has urged trustees and sponsors to ensure that their buyout and wind-up were “carefully” managed and that experienced, specialist support was brought in to help schemes navigate “bespoke challenges, common pitfalls, and resource bottlenecks”.

LCP partner and head of post-transaction services, Rachel Banham, said: “The busyness of the market and accompanying resource constraints mean that specialist, experienced support is essential after schemes complete a full-buy-in.

“The pressures created by the sheer volumes of schemes looking to move to buyout and wind-up are likely to become significantly more pronounced over the next few years given the rapid projected growth in insurer implementation pipelines.

“Trustees and sponsors should make sure their buyout and wind up is carefully managed if they want to complete their process within their expected timescales and budgets.”

Adding to this, LCP senior consultant, Alex Stobbart, said insurers and other providers are “building up” their teams and investing in enhancing automated processes which would help to ease some of the pressures.

But Stobart argued that “the bottom line” was that schemes “need to be proactive to make sure the post-transaction phase runs smoothly and member service is maintained, with thorough preparation and the right support in place”.

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