Defined benefit (DB) pension scheme sponsors should engage in all stages of a DB scheme’s journey to buyout to ensure a successful deal and avoid the risk of increased costs and poor member experience, Hymans Robertson has said.

In its latest paper, Hymans Robertson argued that collaborating and engaging with scheme sponsors at each of the three stages of buyout - run-up to insurer transaction, the transaction and converting to buyout - is "vital" in keeping the process on track.

“Once a DB scheme has decided that buyout is the correct endgame option for them, there are key steps that the scheme needs to work through and the importance of these must not be underestimated," Hymans Robertson head of corporate consulting, Leonard Bowman, explained.

“Whilst this is well understood by schemes, what is becoming increasingly clear is the smoothest and most efficient buyouts are those where the company and trustees work collaboratively together.

"Trustees will always be key to driving a buyout, but at each stage the company can have a vital role to play in keeping the process on track."

In particular, Hymans Robertson said that the scheme needs to be on the "frontfoot" as its timeframe to full buyout funding shortens, stressing that decisions to get the scheme ‘insurer ready’ must be taken collaboratively, with the company and trustees working together to ensure funding levels, due diligence and data cleansing comes together, before the scheme engages with insurers.

“Increasingly, there are companies open to making cash injections to accelerate the process, provided they feel they are in a collaborative process with their trustees," he added.

“The more prepared the scheme is, the more it signals to insurers that this is a scheme that is serious about transacting and who wishes to move forward. This impression is magnified if the insurer sees the trustee and company are in lockstep.

"This increases insurer engagement, minimises the likelihood of member unrest and in extreme cases removes unwanted media attention."

In addition to this, he argued that a more collaborative approach throughout the process will make the final stage of converting to buyout, which is often the most time consuming aspect, more straightforward.

"This stage can last several years as the many, and varied, legal requirements need to be worked through and any remaining risks need to be managed prior to the buyout," he explained.

"The better managed the buyout journey has been, and the more collaborative the company and trustees are, the easier and more straightforward this stage will be.”

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