Liability management exercises and data exercises are key to moving towards a buyout, reports Jenna Gadhavi

Driven by maturing defined benefit schemes and volatile funding levels, buyouts are expected to become increasingly common in the future. Indeed half of respondents surveyed cited buyouts as their plan sponsor’s long-term objective for the scheme. 

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Schemes with this goal should be thinking about reshaping their liabilities now, so that insurers prioritise their scheme when the time comes. Insurers like simplicity and predictability, so removing smaller liabilities through a trivial commutation exercise, or reducing the inflation risk exposure through pension increase exchanges could make a scheme a more attractive proposition.


This certainly rang true with our Buyout report survey respondents, with many carrying out liability management exercises both before and after the introduction of freedom and choice. The most common option was a trivial commutation exercise – 28% of respondents had completed an exercise before April 2015 and 20% had done so since that data.

Many schemes have also taken the relatively simple step of reminding members of their options as they approach retirement. One in five schemes took this approach, and the extra flexibilities introduced in April will have made the chance to transfer out more attractive to some members.

Less common options included pension increase exchanges, which give members the chance to swap an inflation-linked benefit for a higher starting income that doesn’t ad conducted an exercise among pensioner members pre-April 2015, and a similar proportion had done so over the last year and a half. Just 4% offered pension increase exchanges as standard at retirement.

Tidying data

The other area in which schemes can act to make their benefits more attractive to insurers is data quality.

Again, insurers like certainty, and the more information they have on members – and the more confidence they have in that data – the more competitively they will price.

While most schemes have undertaken some action to get their data in shape – just 4% of respondents had carried out none of the exercises on our list – many recognised they had some way still to go. Almost a third said preparing their data would be their priority if their sponsor indicated a de-risking deal was on the cards.

Actions taken to tidy up scheme data include guaranteed minimum pension exercises. Although just 5% of schemes had completed GMP reconciliation, 29% had started the process. Some 18% had gone over their legal documents to check for historic problems.

A number of schemes had also begun collecting data on members’ spouses. This is an area that many schemes have traditionally turned a blind eye to, but could make a material difference to the value of liabilities. Some 14% of schemes had collected data on pensioners’ partners while 9% had done the same for pensioners and deferred members.

So schemes have certainly started acting to make their schemes easier to insure. With so many targeting an eventual buyout, though trustees cannot afford to be complacent. If capacity in the market gets squeezed, those schemes with the cleanest data, and the simplest benefits will find themselves at the head of the queue.

Pre-April 2015, 76% had run a liability management exercise of some description.

Liability management

Despite the pensions freedoms introduced in April 2015, the liability management exercises that survey respondents carried out pre and post freedom and choice remained largely the same. The only type of liability management that reduced was trivial commutation exercises (from 28% to 20%), although this could simply be down to the fact that once they are done, they don’t need to be done again.


The more data preparation a scheme does, the cheaper it could be to insure their liabilities.


Thirty one per cent of respondents cited ‘preparing data on the liabilities so that bulk annuity quotes can be requested’ as their main priority, should the company indicate that a buyout might soon be viable.

Interestingly, very few respondents cited starting a liability management exercise as their main priority, but this could well be because many of them had done so already, as the survey results show.

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