Speed is your friend

Speed is your friend

Adam Davis discusses the benefits of being able to act fast when looking to buyout a pension scheme.

Buyout Specialist, Pensions

KPMG in the UK


Also on KPMG.com


“Speed is your friend!” – a sentence a ski-instructor once said to me, that with my actuarial prudence got fairly short change. However, I grew to learn that he was right and recently, when completing a third buy-in for a client, I was reminded that the same can be said for buy-ins and buyouts.

By “speed”, I mean the ability to trade quickly with an insurer. It is typical for a buy-in process to take in excess of six months from the initial decision to investigate. But why is speed helpful?

Hopefully, the first reason is obvious. Scheme assets and funding and accounting measures of liabilities all suffer from a fair amount of volatility (something the recent Brexit vote is unlikely to help reduce). Being able to transact quickly means your scheme can trade when conditions are favourable to you.

The second, less well known, benefit of speed is that it puts your scheme at the front of the queue for great pricing. For many reasons, insurers have periods in which they are keener to trade than others. This could be because they have sourced an attractive asset or simply because they are nearing year-end and want to meet new business targets.

Some schemes end up ready to trade when an insurer is in such a position by pure chance. However, if your scheme can be in position to trade quickly, you will be able to seize those chances without relying on luck. In the example of the third buy-in I referred to at the top, the insurer offered a 3% reduction to their price to hit the client’s target. The insurer offered those enhanced terms because they knew the scheme could transact quickly and they did – the trade was completed within three working days of the client deciding to proceed!

It isn’t rocket science to put your scheme in a position to trade quickly and I can testify that it isn’t as scary as standing at the top of a black run being told “speed is your friend”. Get in touch to discuss how to get your scheme ready.

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