This means that the organisation responsible for some (or all) of a defined benefit pension scheme is changed - a process sometimes called 'de-risking'. The BPA provider takes over responsibility for making payments to the members involved.
The two BPA options
Although there’s only one BPA product, organisations can decide how fully they want to embrace the principle of de-risking. You can remove some or all of the associated risks.
How a buy-in works:
These are annuity policies that usually only cover some of your pension scheme liabilities. For example, those associated with your current pensioners who are already receiving their pension payments.
Why choose a buy-in?
This type of BPA is sometimes used to remove some of the more expensive elements from an organisation's scheme - for instance a group of higher paid members could be selected to have their payments made by the BPA provider.
How a buyout works:
The scheme’s liabilities are transferred to the insurer, who then takes full responsibility for paying the members.
Usually, the original scheme is then wound up.
Why choose a buyout?
De-risking a scheme means members are guaranteed to continue receiving their pension payments.
The organisation can free up funds used to maintain payments for reinvestment.
Resources can be devoted to other channels while the organisation takes advantage of specialist risk management expertise from the provider.