Case Study

I recently worked with a client looking to reduce their liabilities. They decided to offer members of the scheme enhanced transfer values.

Prior to beginning the exercise, the client had scheme assets of £3m, liabilities of £6m and so a buyout shortfall of £3m.

Their ultimate aim was to secure scheme benefits with an insurer but £3m was unaffordable.

£m (Buyout) Liability Assets Shortfall
Pre exercise 6.0 3.0 3.0
Liability extinguished (4.7) (2.6) (2.1)
Post exercise 1.3 0.4 0.9

 

During the exercise, members with liabilities totalling £4.7m transferred out of the scheme. The assets that were removed from the scheme in respect of these transfers were £2.6m.

The client had therefore reduced their buyout shortfall to £0.9m.

There was a cost to the client for running the exercise and offering enhancements. The client paid out a total of £1.1m in transfer value ‘top-ups’ and advisory costs, resulting in a ‘net’ saving to the client of £1m.

The client is now monitoring the buyout market with a view to transacting at the first opportunity.

£m
Liabilities extinguished 4.7
Cost to scheme (2.6)
Cost to Company (1.1)
Net saving 1.0