This post will be of interest to employers who have a defined benefit pension scheme.


Defined benefit (DB) pension schemes were once the pension arrangement of choice for paternalistic employers seeking to provide competitive benefit packages for their employees.

In more recent times, however, difficult investment environments, increasing life expectancy, low gilt yields and in many cases shrinking company size, have left companies with expanding DB pension schemes burning a hole in their balance sheet. Sound familiar? It is unlikely you would have missed the press coverage surrounding BHS and Tata Steel, and the issues that those companies faced.

Removing risk – buy-ins and buy-outs

There are a number of risk transfer options available to DB pension schemes, attractive to employers and trustees wishing to protect against the risk of increasing liabilities. Two of the most common are buy-ins and buy-outs, commonly referred to as bulk annuity policies.

These are insurance contracts entered into between a pension scheme and an insurance company. In exchange for the payment of a premium, the insurer agrees to pay whatever the eventual liabilities are in respect of the insured members. With a buy-in, the policy covers a particular set of members, normally some or all of the pensioners. With a buy-out, the policy covers the entire membership. The key differences are set out below.

What do you need to consider? – the key differences

Buy-in Buy-out
Implications for the scheme Treated as a scheme investment. The scheme otherwise continues on unchanged and employer contributions continue (where necessary). Precursor to a scheme winding up. No more employer contributions.
Which members does it affect? A particular group of members The entire membership
Cost Cheaper option More expensive option
Who pays for it? Scheme may have sufficient funding to pay itself. Likely to require capital from the employer unless scheme in surplus.
Balance sheet implications Scheme remains on company balance sheet Scheme removed from company balance sheet

A buy-out is an aspirational "end-game" for most DB pension schemes, however it remains unaffordable for most in the short term. A buy-in is a popular and more easily attainable means of removing a significant amount of risk from your DB scheme, and which is frequently used as a stepping stone to a full buy-out in the longer term.

How can we help?

The volume of business in the pensions risk transfer market is currently at an all-time high. Mayer Brown's UK Pensions Risk Transfer Group advises on buy-ins, buy-outs and longevity swaps and we would be very happy to discuss with employers any proposals they wish to present to or have received from the trustees of their pension scheme(s).

February 19, 2020

Visit us at

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.