The case study revolves around a Defined Benefit pension scheme with 1,000 members. The trustees and sponsoring employer opted for a pension buy-in, due to various financial and accounting benefits. Thanks to a rapid boost in their funding position and competitive market rates, they wanted to jump on the opportunity as soon as possible.
A series of hurdles emerged at the start of the transaction. Initially, the scheme data was not adequately prepared for an insurance contract, and valuation data had been used for pricing – this data had been adjusted by the Scheme Actuary based on a series of assumptions about the insurer’s requirements, including re-tranching of certain benefits. By the time Trafalgar House was brought into the project, scheme data had materially diverged from the pricing data, leading to gaps identified by the insurer. Moreover, the client was pleased with the indicative pricing and sought to expedite the transaction, which required rapid, large-scale data improvement. A comprehensive benefit specification was also initially lacking.
To address these challenges, Trafalgar House employed a targeted approach. The Client Relationship Manager took the lead on overall deliverables and internal coordination, while external parties lead on overall project management aspects. Our specialist pensions technical team took the lead on analysing and coordinating the completion of the benefit specification. Simultaneously, the project team focused on improving and building upon the existing data. Specialised services were used for marital status screening, and a first principles approach was applied to recalculating spouses’ benefits. Particular attention was given to a large project involving complex ‘at retirement’ spouses’ benefit options, requiring individual record review.
The pension buy-in transaction was successfully executed at the scheme’s asset levels. This was partly due to the reduction in the risk element of the premium, which bolstered the insurer’s confidence in the data quality and operational requirements. The transaction was finalised within a remarkably short timescale. Due to the swift nature of the transaction, the insurer was not prepared to take over certain member service aspects, such as producing Pension Commencement Lump Sums (PCLS). Trafalgar House filled this operational gap. Additionally, we agreed to maintain our online platform as there was no online solution offered by the insurer.
One vital lesson for pension schemes embarking on a buy-in transaction is the necessity of early data readiness. When initiating work on an insurance contract, data preparation even before you anticipate needing it, can pre-empt many of the challenges highlighted in this case study.
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