The paper outlines the three stages of buy out – run-up to insurer transaction, the transaction and converting to buy-out – which must be undertaken for a successful buy-out process to take place. The leading pensions and financial services consultancy reviews the role that sponsors have in the buy-out process, and how their engagement is key at each stage of the buy-out journey.
Commenting on the importance of a well-planned buy-out journey for DB schemes, Leonard Bowman, Head of Corporate Consulting, Hymans Robertson, says: “Once a DB scheme has decided that buy-out 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. Whilst this is well understood by schemes, what is becoming increasingly clear is the smoothest and most efficient buy-outs are those where the company and trustees work collaboratively together. Trustees will always be key to driving a buy-out, but at each stage the company can have a vital role to play in keeping the process on track.
Firstly, the scheme needs to be on the frontfoot as its timeframe to full buyout funding shortens. 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.
“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. Our paper outlines the key role that sponsors have to play, at this stage.
“The final stage, and one which is often the most time consuming, is the conversion to buy-out process. 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 buy-out. The better managed the buy-out journey has been, and the more collaborative the company and Trustees are, the easier and more straightforward this stage will be.”
Hymans Robertson paper Excellence in buyout
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