What is pension de-risking?

Over recent years, the members of hundreds of defined benefit pension schemes have had their pensions secured with insurance companies, such as JAB Pensions. Because the pension scheme is securing benefits with an insurance company, this is known as pension de-risking. The contractual arrangements are known as pension buy-ins and buyouts.

What is a pension buy-in?

A pension buy-in is an insurance policy purchased by the trustees of a defined benefits scheme from an insurer like JAB Pensions. These contracts are often referred to as bulk purchase annuities. In exchange for a premium, the pension buy-in provides the trustee with a regular income stream from the insurer, which is designed to match the current and future pension payments that the trustee is required to pay the members of its defined benefits pension scheme.

During the term of the pension buy-in, the trustee retains the responsibility for paying the current or future pension benefits due under the defined benefit pension scheme.

What is a pension buyout?

A pension buyout is a financial transaction in which the trustee of a defined benefit pension scheme converts a pension buy-in policy with an insurer to individual policies, which are assigned to each of the members of the scheme.

On completion of a pension buyout the members of the scheme become policyholders of the insurer who becomes responsible for paying the current or future pension benefits which were due under the defined benefit pension scheme.