The Solvency II Review could provide a "golden opportunity" to make the rules for buy-ins and buyouts better for insurers, pension schemes and members, LCP has said, calling for greater flexibilities from the Treasury.

In its response to the Treasury’s call for evidence, the firm has called for a “detailed look” at the rules governing buy-ins and buyouts to allow insurers to better meet the requirements of defined benefit (DB) pension schemes and members.

It noted that the UK insurance regime is "widely viewed as the gold standard” destination for securing pension liabilities, agreeing that maintaining the security of insurers should always be the primary objective in any review, in order to ensure member benefits are secure over the long term.

Despite this, it argued that more flexibility around product design and liability eligibility rules could provide "clear benefits" for both insurers and pension schemes without compromising policyholder protections.

In particular, the firm has called for an end to the grey area around whether part of a buy-in or buyout premium can be deferred, as well as relaxation of the rigid restrictions on adjustments to the insured pension benefits over time.

It has also called for more flexibility to allow insurers to move away from standard member options, particularly where the scheme may want to pay more generous terms, in order to avoid unnecessary step-changes in terms for members in future.

In addition to this, it recommended more flexibility to provide surrender values for schemes seeking such features and more accessible public reporting on insurers’ solvency positions.

LCP de-risking practice partner, Charlie Finch, welcomed the review, noting that one in six pension scheme members have already been insured, and estimating that this will rise to one in three by the middle of the 2020s.

“This is all the more reason to iron out the wrinkles in the existing rules to ensure it continues to be an effective and vibrant marketplace,” he said.

“Policyholder protection should rightfully be the primary objective in any review but we think improvements can be made to the rules whilst maintaining the safety and soundness of insurers.

“The buy-in/out market works well, but there are some rigid rules under Solvency II which restrict flexibility at present. It would be a real shame to miss the opportunity to fix this.

“Reporting of solvency information could also be improved to aid understanding and de-mystify insurance for pension trustees and their members.”

Share Story: