There is a comfortable consensus in the UK pensions business that pension schemes’ funding has recently improved so much that they can safely move towards a so-called endgame. This happens in two ways. One is by transferring risk to an insurer via a buy-in, or bulk annuity purchase, where a pension scheme takes out an insurance policy that pays out all commitments to its members. The other is a buyout, where the scheme transfers all its liabilities to the insurer.
At the same time, a run-on allows pensions to be financed with a healthier risk appetite across a wider range of asset categories than insurers tolerate. That highlights the broader economic consequences of transferring risk to insurers. Graham Pearce and John O’Brien of consultants Mercer point out that the risk transfer transaction process is inefficient and costly.