1. Benefit assurance – quite rightly, data is often the starting point for trustees and administrators when thinking about buy-out. Is it correct, held where it should be and, most importantly, complete? However, few consider revisiting the scheme Rules to establish if their execution matches the governing Deeds. A benefit assurance programme will ensure that changes to Rules have been executed and implemented properly and that crystallised liabilities are accurate and fully reflective of the Rules.

This starts with a full and comprehensive legal review of a scheme’s documentation, intended to guarantee that the inevitable changes to a scheme throughout the years were properly executed. Collaboratively created by the legal adviser and administrator, the output of this process will often be a benefit specification that decisively describes the operational basis of the scheme. With the benefit of this document, an administrator can then assess any gaps or inconsistencies between intention, understanding and practice.

This might seem an obvious and basic requirement to anybody outside of the pensions industry, but a benefit assurance project often uncovers gaps between expectation and reality. Commonly, this process uncovers issues with changes to accrual, equalisation splits and the application of escalation or revaluation. Inevitably, errors such as these can lead to a divergence between funding plans and scheme rules. Understanding, establishing and fixing liabilities must be the first step in any scheme’s journey path to buy-out. By completing a benefit assurance process early, you are less likely to be impacted by any unexpected funding shocks when getting to close to buy-out funding.

2. Data analysis – whilst identifying inconsistencies in the dataset is essential, the order of events is just as important. Data analysis should only be performed after benefits have been established and agreed upon. Without first completing a benefit assurance process, trustees run the risk of repeating data analysis and associated corrections, incurring unnecessary costs. Many schemes will have already started looking at data from an ongoing operational perspective. However, the requirements and demands that are needed for buy-out are at a completely different level, so be prepared for a deep dive into a level of detail that probably hasn’t been undertaken before.

3. Record reduction – when liabilities have been established and data analysed, trustees should consider reducing the number of records under management. There are many strategies that can be adopted to achieve this, but looking at small pot and trivial commutation exercises should be the first stop. Consideration should also be given to AVC policies and how these can best be rationalised to reduce record numbers and simplify the transaction with the buy-out provider. Other options might include offering members cash equivalent transfer values and / or pension increase exchange exercises to further reduce liabilities ahead of buy-out.

Like anything, forward planning is key to a successful buy-out transaction. Your administrator will play a critical role in the success of the process, so engage with yours as fully and proactively as you can – you do not want to have your process derailed by any unexpected funding shocks or by a lack of time and resource. Finally, if buy-out still feels some time away and your scheme is closed to future accrual, then consider starting the administration processes and steps now rather than waiting until your funding position improves – by following these steps early, you will still benefit from understanding and establishing your liabilities whilst also improving operations and giving your members a better experience.