While buy-ins have typically been viewed as transactions that are only an option for larger schemes, size is no longer the barrier it once was.

The ability for smaller schemes to enter the risk transfer market is becoming more affordable and insurer appetite is increasing. Notwithstanding this, the possible lower price tag attached to these transactions does come at a cost. In order to make sure their offerings are commercially viable, insurers generally offer a more “streamlined” approach to smaller schemes compared to the more “bespoke” approach that might be on offer to a much larger scheme buy-in deal. As such, for trustees of smaller schemes considering a buy-in as part of their endgame planning, the expectations as to what an insurer will be able to offer requires a different mindset compared to larger schemes embarking on a similar journey. Rather than expecting insurers to tailor their offering specifically around the scheme’s benefits, trustees should be considering whether their scheme can “fit” within the insurer’s defined framework while still, ultimately, reflecting members’ legal entitlements). Think off the rack rather than made to measure.

So, what should trustees of smaller schemes be thinking about when it comes to a buy-in project?

• Benefit design: with small scheme buy-ins, much of the work to be undertaken involves identifying and managing the differences between scheme benefits and the benefits an insurer is prepared to cover under its standard terms.
• Efficiencies: given the potential for greater budgeting constraints, issues that may be manageable to address on a larger scheme buy-in transaction could have a disproportionate impact on a smaller one. Therefore, taking pragmatic and proportionate approaches to decisions will be particularly important.
• Discretions: although on larger scheme buy-ins, trustees might have more autonomy to decide the basis on which they wish to insure certain discretions, with smaller schemes, insurers may be less willing to be so accommodating. Although not always the case, it is important to engage with the insurer openly to explore what is actually possible.
• Governance and administration: insurers will want comfort that benefits have been administered consistently and that there is sufficient evidence to support the benefits being insured. With some smaller schemes, it may be the case that no administration practice exists for the provision of certain benefits. Trustees will need to carefully consider practical ways of aligning historic administration practice (where applicable) with insurer expectations.

The good news is that there are often solutions to these considerations. Alongside getting ahead of the game with addressing member data issues, legal and other administrative measures (such as augmenting benefits) exist, all of which can help give smaller schemes every chance of being able to enter into a successful buy-in transaction.

While the journey may look different from that of a larger scheme, trustees of smaller schemes should not underestimate what is achievable. With realistic expectations, a clear strategy and a pragmatic approach, there are big opportunities for successful small scheme buy-ins.

Sackers has extensive experience helping trustees of smaller scheme navigate buy-in projects. If you would like to discuss whether a buy-in could form part of your scheme’s endgame strategy, please get in touch with your usual Sackers contact.