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De-risking: Jargon Buster

From buy-ins and buy-outs to longevity swaps, when it comes to choosing a pensions de-risking solution there are a number of options for employers and scheme trustees. For every de-risking option, new terminology is often used.
If you come across a term or phrase and you are unsure what it means, you can use our jargon buster to quickly find a short and simple explanation to help you on your way.
Each full explanation has other key terms highlighted in bold



All-risks refers to a bulk annuity insurance policy which covers residual risks that a buy-in or buy-out would not normally cover i.e. potential liabilities outside of the core benefits. They vary in the scope of their cover and are often called residual risk policies (because they don’t cover all risks in a literal sense).

Balancing Premium

This is the balancing amount which is payable to the Trustee or to the insurer once the data cleanse has been completed. Also called a premium adjustment.

Benefit specification

This document summarises all the benefits which are going to be insured by the insurer. It will also capture discretions and practices (for example, in relation to financial dependency or young spouse reductions) or may include codification of discretions.

Best estimate of liabilities/BEL

The “best estimate of liabilities” is an insurer’s best estimate of the net liabilities that it will have to pay out over the life of an insurance contract or group of insurance contracts. The termination payment (if any) in a buy-in or buy-out contract is often linked to the best estimate of the relevant liabilities being insured at the time of termination.

Bulk annuity/Bulk purchase annuity/BPA

A bulk annuity or a bulk purchase annuity is an insurance policy taken out by the Trustee. The insurance policy is in the Trustee’s name and is an asset of the scheme. The insurer will make scheduled payments under the policy to match the Trustee’s insured liabilities. The Trustee and its administrator continue to operate the scheme as usual but are funded by payments under the insurance policy. Members do not have direct rights against the insurer.


A buy-in is a bulk annuity policy that is held by the Trustee. This can either be held for the long term or simply just for the period of time before moving to buy-out.

A buy-in will always precede a buy-out. This is because the first step in buying-out will always be a bulk annuity policy with the Trustee (the buy-in policy) before the insurer issues individual policies for beneficiaries which achieves the buy-out.

Buy-in price or Initial premium

The initial amount which the Trustee will pay to the insurer to go on-risk. Subject to adjustment as part of the data cleanse.


A buy-out refers to the process where the insurer steps into the shoes of the Trustee and issues individual policies to scheme members. The members’ benefits are then provided directly by the insurer. The Trustee is discharged from liability in respect of those benefits it has bought out. If all benefits are bought out, the scheme usually winds up.

A buy-in precedes a buy-out. A buy-in that is intended to move to buy-out is often called a buy-out.


Collateral refers to a pool of assets held as security in return for an insurer’s obligations under the insurance policy. If the insurer goes insolvent, or if certain triggers occur, the Trustee can have recourse to those assets. If a transaction is collateralised, this means that there is collateral being held. The collateral is usually held by a separate custodian. There is no obligation to have collateral.


The consolidators or “Superfunds” are occupational pension schemes that are set up “for profit”. A consolidator will take on the assets and liabilities of other defined benefit pension schemes by way of a bulk transfer. It is a single employer scheme with no link to the transferring pension scheme (or its sponsoring employers). No benefits are built up whilst in the consolidator’s scheme. The scheme will include a capital buffer which sits outside the scheme.


The insurer will only insure the benefits and risks the Trustee asks them to, and what they insure is the coverage. Therefore, anything outside the scope of the coverage described in the contract or the benefit specification will not be insured and the Trustee will have to pay out of its own pocket for this. Whether or not a certain risk (for example GMP equalisation) is covered will be a matter of negotiation and may be subject to the payment of an additional premium.

Data cleanse (often referred to as verification)

This is a process where the administrator will cross-check and verify certain data they hold for the members of the scheme (usually referred to as the Initial Data) for the purposes of the buy-in. For example, this may involve checking members are still alive; whether their date of birth is correct; and whether their sex is correct.

This is often referred to as verification. The data cleanse will likely be followed by a Balancing Premium also known as a Premium Adjustment. This can be a complex and lengthy process and can be carried out in advance of a de-risking project, or after the transaction has been entered into and before buy-out. The aim is to make sure the data is as accurate and complete as possible.

Dis-intermediated structure for a longevity swap

Some longevity swaps are structured this way.

The insurer acts as a pass-through or go-between as far as possible and the Trustee contracts with the reinsurer as much as possible.

Also referred to as a pass-through structure.

Due diligence

The insurer or reinsurer will usually undertake some form of review before a buy-in or longevity swap. This is checking the scheme, it’s operations and its data to check they are happy to enter into a contract with the Trustee and to identify any issues they have.


Where the Trustee agrees to only negotiate with a certain insurer for a possible transaction. It will usually last for a limited time. There is no obligation to transact at the end of it. Exclusivity may be documented in an exclusivity letter and is often provided as part of the insurer agreeing to a price lock.

Experience data

The data the Trustee holds about the deaths within the scheme.


The Financial Conduct Authority.

Finalised Data File/Verified Data

This is the member data post-data cleanse/verification (i.e the data has been checked, errors corrected) and the insurer and the Trustee have agreed that this is the final data. There is often a balancing premium to pay once the final data has been agreed.


This is the Financial Services Compensation Scheme, which is a body which compensates holders of insurance policies subject to certain conditions and limits if the insurer goes insolvent.

Fully-intermediated longevity swap

Some longevity swaps are structured this way. The Trustee enters into an insurance policy just with the insurer and has no visibility over the insurer’s own hedging arrangements.

Gap policy

This relates to the insurer’s matching adjustment requirements. If an insurer wants to place the assets held under the Trustee’s bulk annuity policy into its matching adjustment portfolio, the policy has to comply with certain terms.

If a term or payment (for example, payment on termination of the policy) does not comply with the matching adjustment requirements, the insurer may request this be covered by a separate policy so as to avoid invalidating the whole contract from qualifying for matching adjustment. This excess or additional insurance will be put into a gap policy, that is just a separate insurance policy, that is not eligible for matching adjustment.


After the buy-in is executed, the operational aspects of the buy-in are put in place.


The date the policy is effective and the insurer goes on-risk for the benefits.

Initial Data File/Initial Data

This is the spreadsheet, or other file, containing the key data for payment of members’ benefits (i.e. names, NI numbers, dates of birth, pension in payment). This is normally provided right at the start of the transaction, and then once the documents are signed the verification/data cleanse period begins. The initial premium (i.e. the price the Trustee pays at the start of the transaction) is based on the Initial Data.

Initial Period

The period under the contract before the Finalised Data File is confirmed.

Insurer factors

These are the factors the insurer uses to calculate benefits such as reduction to pension for early payment or the factors used when pension is being commuted for tax-free cash. These are usually different to the Trustee’s scheme specific factors.


Invitation to quote or request for proposal: This is essentially a tender which goes out at the start of the process to insurers who will return their price on the basis of that document. It is usually accompanied by the benefit specification.

Joint working group

This can be a working group set up by the Trustee with or without the scheme sponsor and is used as part of managing entering into a buy-in, buy-out or longevity swap.


How long members live.

Longevity swap

An insurance policy similar to a buy-in but the only risk the insurance policy covers is longevity. It covers members living longer than expected. The survival of dependants is usually covered as well.

Matching Adjustment/MA/Matching Adjustment Portfolio

How much capital an insurer has to hold is determined in part by the value of its liabilities. Insurers value the present value of their liabilities using a discount rate.

A matching adjustment (MA) is an upward adjustment to the discount rate, which has the effect of reducing the amount of liabilities and has the effect of reducing the insurer’s Solvency II capital requirements.

An insurer can only use matching adjustment where it meets certain conditions and has a matching adjustment portfolio. When an insurer has a matching adjustment portfolio, this means that it sets aside a portfolio of assets to support a known/predictable portion of its liabilities. The return on the assets in the matching adjustment portfolio match the liabilities attributable to that portfolio – i.e. the assets match that proportion of its liabilities, and so the overall risk is reduced and the insurer is able to use matching adjustment to reduce its Solvency II capital requirements.

An insurer may put a bulk annuity contract into a matching adjustment portfolio, which means that the contract needs to comply with the matching adjustment requirements. If a term is non-compliant, it may be put into a gap policy.

Material change

This is where as a result of the data cleanse there is a large change in the data and can lead to the insurer being able to re-price the transaction or in some circumstances even terminate if the change is large enough.

Minimum capital requirement

This is the absolute minimum level of capital insurers can hold without losing their licence. As described below, Solvency II requires a level of capital high above that minimum.

Missing beneficiaries

Members of the scheme that the Trustee does not know about.

Mortality Risk

The risk that a person dies. Where insurers have provided life cover that pays out on death they often reinsure this mortality risk in the life reinsurance market. When the same reinsurers also insure longevity risk for pension funds or bulk annuity insurers, the two risks can offset and reduce the capital requirements for the reinsurer.

Non-disclosure Agreement

This is put in place when the Trustee wants to pass scheme (including member) data to the insurer so the insurer can provide a price. This governs the insurer’s use of that data and includes protections for the Trustee.

On risk

The point in time at which the insurer becomes liable under the buy-in or longevity swap in respect of the insured benefits (and goes ‘on risk’).

Part VII Transfer

This is a court-approved regulatory process for an insurer to transfer some or all of its business to another insurer. The process is overseen by the court and the PRA and FCA, and an independent expert is appointed who considers the impact of the transfer on policyholders, including any trustees who hold an insurance policy.

PPF+ Buy-out

This is a buy-out where benefits are secured at a level below full scheme benefits but greater than PPF compensation. This is usually done either following the sponsor’s insolvency (where the scheme is funded above PPF levels) or as part of a restructuring to allow the survival of the sponsor (such as a regulated apportionment arrangement).


The Prudential Regulation Authority.

Price lock/gilt lock/ price-lock portfolio/asset lock

At the outset of the transaction, the insurer’s pricing terms may be agreed relative to market conditions. Therefore, over time, the exact amount of the premium moves in line with market conditions or the insurer’s investment strategy. This leads to a risk that the premium moves so much that the Trustee can no longer afford it.

In order to pay the premium, the Trustee will usually set aside cash and assets (i.e. shares, bonds, gilts) to fund the premium.

Under a “Price-Lock Portfolio” the insurer agrees that their premium will be tracked in line with a portfolio of identifiable assets usually gilts but often also including corporate bonds and swaps. If it is entirely made up of gilts then it is called a gilt lock.

This means that the Trustee can make sure the movement in their assets matches the movement in the premium.

Where the Price-Lock Portfolio matches assets held by the Trustee then it is often called an Asset Lock.

The “price lock” is usually agreed at the outset of exclusivity.

Pull admin payroll

This is the payroll mechanism provided for in the buy-in where the Trustee calculates the amount due for each payroll and informs the insurer of the amount payable to the Trustee.

Push admin payroll

This is the payroll mechanism provided for in the buy-in where the insurer calculates and pays the amount due for each payroll.

Query log

As part of the insurer or reinsurer’s due diligence, they may ask certain questions about the scheme’s data and benefits. The queries and answers will be recorded in the query log.


The insurer with whom the Trustee transacts may itself insure its liabilities with another insurer, called a reinsurer. The reinsurer will not be involved with the Trustee in the buy-in or buy-out transaction as they do not have the right regulatory permissions to deal with the Trustee directly, but the insurer may have restrictions on its ability to insure certain benefits if it cannot obtain reinsurance in the market.

The Trustee may have more interaction with the reinsurer under a longevity swap depending on the structure.

Residual risks

These are types of risk outside of the core benefits that a buy-in or buy-out would not normally cover, for example, the risk of missing beneficiaries within the scheme or that the benefits provided are incorrect. A policy that covers residual risks is sometimes called an All-Risks policy even though this is a misnomer as it doesn’t cover all possible risks.

Risk margin

Risk margin is an amount in addition to the best estimate of liabilities that is designed to represent the additional cost of getting a willing insurer to take over the liabilities. It is calculated in accordance with Solvency II.

Run-off cover

This is insurance cover the Trustee can take out on winding up the scheme which covers risks not covered by the buy-out, all-risks or residual risks cover. Examples of the cover provided includes cover for costs in defending any claims that may be brought against the Trustee. It is usually provided by the general insurance market and is separate from the bulk annuity policy.

SEFT site

A site which allows for secure transfer of data electronically. This is often used to provide the insurer or reinsurer access to the scheme’s data in a transaction and ensure the data is protected.

Selection risks, anti-selection

The risk where one party uses information the other does not have to its advantage. For example, if the Trustee had done a medical questionnaire of its membership and knew that the health of the members it was choosing to insure was above average and the insurer is not aware of this.

Single premium

This is where the Initial Premium is the only premium due and no true-up will be payable.

Solvency II

Solvency II is an EU directive which regulates how insurers can carry out their business. It imposes Solvency II capital requirements on insurers, so that they can withstand economic and other shocks. The requirements of Solvency II are linked to the amount of an insurer’s liabilities.

Solvency II capital requirements/SCR/Regulatory Capital/Reserves

Under Solvency II, insurers have to hold sufficient capital to withstand a "1 in 200" shock event – i.e. enough capital so that there is at least a 99.5% chance that they will be able to meet their liabilities over the next 12 months.

Statutory discharge

Pensions legislation provides a statutory discharge to trustees who buy-out benefits in accordance with the legislation. The discharge will provide protection to the Trustee in respect of the benefits bought out.

Termination Payment

Also referred to as the cancellation payment, this is the amount which the Trustee will be paid if the policy terminates (if there are termination rights). The amount often depends on whether the termination was the fault of the Trustee or the insurer, and often has a relationship to BEL.


This is a process to check whether pensioners and beneficiaries receiving pensions from the scheme are still alive or to identify correct contact details.

Transition team

The team at the insurer who will help the scheme establish the buy-in, complete the data cleanse and then move from buy-in to buy-out.

Vendor due diligence

This is any review that the Trustee may do of the scheme, its data and processes in preparation for a transaction. The Trustee may choose to share the results with the insurer or reinsurer, usually on a non-reliance basis.


This forms part of the balancing premium/premium adjustment and represents the difference in the benefits which were paid during the data cleanse from what should have been paid in light of the Finalised Data File.

Vendor due diligence

This is any review that the Trustee may do of the scheme, its data and processes in preparation for a transaction. The Trustee may choose to share the results with the insurer or reinsurer, usually on a non-reliance basis.


These are various statements each party will make in the contract giving the other party assurances that a particular statement of fact is true. This can include warranties from the Trustee about the scheme’s data that has been provided to the insurer or reinsurer for pricing purposes.

Wrap around cover

This is a type of residual risk cover, which applies where one insurer provides residual risk cover in respect of scheme liabilities that are already covered by a buy-in with another insurer (i.e. the residual risk cover “wraps around” the existing buy-in). It often applies from buyout, with the final buyout insurer providing residual risk cover in respect of all scheme members, including those whose core benefits are already covered by a previous buy-in with another insurer.

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