Pension buyout

pension buyout (alternatively buy-out) is a type of financial transfer whereby a pension fund sponsor (such as a large company) pays a fixed amount in order to free itself of any liabilities (and assets) relating to that fund. The other party, usually an insurer, receives the payment but takes on responsibility for meeting those liabilities.[1] Since the liabilities associated with a fund, particularly those associated with defined benefit schemes,[citation needed] are not known precisely at the time of the buyout (as they depend upon how long the members live and investment returns on the fund assets among other factors), the transaction is regarded as a form of de-risking for the sponsor.[2] From 2006 onwards, buyouts of this sort have become increasingly popular in both the United States and the United Kingdom. [2][3]

Pensioner buy-ins are an alternative to pension buy-outs where the financial contract is retained within the pension fund for the benefit of all members not just those members whose benefits are covered by the contract. Pensioner buy-ins are particularly popular in the United Kingdom as they benefit from more favorable accounting treatment and require a lower cash injection from the sponsor.[4]

As of 2014, insurers involved in the market in the United Kingdom include Aviva, Legal & General, Pension Insurance Corporation, Prudential and Rothesay Life, while notable sponsors who have recently sought to offload their risk include Verizon and General Motors in the United States and Akzo Nobel and Total in the United Kingdom.[4]

References

  1. ^“Buyout”. Pension Corporation. Retrieved 22 June 2013.
  2. ^ Jump up to:ab Ruth Sullivan (12 May 2013). “US pension buyouts set to rise”. Retrieved 22 June 2013.
  3. ^Mark Cobley (10 April 2013). “Pensions buyout market awaits new players”. Financial News. Retrieved 22 June 2013.
  4. ^ Jump up to:ab LCP report (May 2013). “LCP Pension buy-ins, buy-outs and longevity swaps” (PDF). LCP. Retrieved 11 May 2014.

Ofer Abarbanel online library

Ofer Abarbanel online library

Ofer Abarbanel online library