Wind-up perspectives
An important consideration for an insurance buy-in involving non-pensioners is how member option terms (e.g. for early/late retirement, commutation, transfers etc…) will be set after transacting. Trustees will complete due diligence on insurer terms and typically align some or all scheme terms with these, though they can choose not to, for the reasons set out below.
However, trustees' responsibilities (and any other parties' referenced in the scheme rules) for these terms don't stop there and the requirement to make sure scheme terms are appropriate remains until buyout. Volatile markets can also lead to large changes so now may be an ideal time to review previously adopted insurer terms.
Reviews should be proportionate, taking into account the scheme-specific circumstances, but also external factors.
Insurers typically review and update their standard member option terms more frequently, e.g. monthly, than the historic triennial or annual practice of pension schemes without insurance in place. If scheme terms are aligned with insurer terms, the trustees may be more relaxed about the frequency of review.
Alternatively, with changes occurring more frequently, trustees may feel there is greater scope for errors to creep into the overall quotation process and so wish to conduct more frequent reviews, or perhaps spot checks on individual cases if there are any concerns. It is becoming more common for trustees to check that insurer terms remain reasonable, particularly in light of any material changes in investment market conditions or life expectancy.
In our experience, trustees typically adopt an annual review of the insurer's member option terms after transacting, though we have examples of reviews being conducted monthly, or only on ad-hoc occasions if buyout is expected imminently.
During the gilts market crisis in September 2022, bond yields rose significantly, resulting in material changes in member option terms provided by pension schemes and also insurers' standard option terms. Since then, yields have remained elevated and we continue to see relatively high volatility. The first half of 2025 has seen further uncertainty in the investment markets, arising from additional tariffs introduced in the US alongside other global market factors.
With heightened market volatility, insurer option terms could change significantly from month-to-month, affecting member quotations for those schemes that have aligned terms. This may lead to an increase in member queries around the terms that they are being offered from the pension scheme, noting that insurers typically honour quotations for up to three months. Therefore, frequently reviewing these terms can help trustees and their service providers better engage with members, in addition to providing comfort that terms remain appropriate.
After an initial review, schemes may also want to set up a monitoring process, for example by tracking changes in bond yields, to help indicate when an out-of-cycle review may be warranted due to changes in market conditions.
WTW has supported the full range of pension schemes with buy-ins on their journey to wind-up, from cases with a handful of members to those with multi-billion pound funds. From this experience, WTW can provide trustees and scheme sponsors with support throughout the whole wind-up journey.
