Why would trustees choose a buy-out plan?

A buy-out plan is typically chosen when an employer or trustees have decided to wind up their existing trust-based, Defined Contribution (DC) pension scheme.

If that sounds like your situation, Standard Life’s Trustee Buy-Out Plan - often referred to as our TBOP (“tee-bop”) - is a tried and tested way of achieving this successfully.

  • It helps keep the process as simple and cost-effective as possible
  • It looks after your members all the way, investing those who opt to do so (or defaulted to the option) into a new individual pension policy
  • It enables the trustees to comply with the relevant legislation

What are the aims of a Trustee Buy-Out Plan?

The core aims are:

  • To transfer members’ benefits to an individual policy on the wind-up of their old Defined Contribution (DC) occupational plan
  • To allow trustees to fulfil their obligations to members and discharge their obligations under the occupational plan

How does Standard Life's Trustee Buy-Out Plan work?

There are two key stages. At the start of the process, members are in a trust-based occupational pension scheme which the trustees or the employer have decided needs to be wound up.

The first stage allows trustees to transfer their occupational plan investment, in bulk, to a replacement Group Policy with Standard Life (the TBOP). This action does not require members’ consent (although it may require the trustees to enter into a consultation process on wind-up).

In the second stage, trustees instruct Standard Life to issue individual buy-out policies to each member. This process winds up the occupational plan and issues each member who has selected the option (or defaulted to the option) with an Individual Plan in their own name with Standard Life.

This discharges trustees of all their liabilities under the previous occupational plan and each member’s plan is replaced by a new Individual Plan with Standard Life.

Starting position

Members are in an existing pension scheme due for wind-up

Stage 1

Funds in the scheme are transferred into a Standard Life TBOP

Stage 2

Standard Life provides new Individual Plans for each member who selected the option or defaulted to it

Key benefits of Standard Life's Trustee Buy-Out Plan

What are the risks involved?

It's important to be aware that as with any major investment-based undertaking, there are risks involved:

  • There is no guarantee that benefits from the plan will be higher than would have been received from the transferring scheme, and members could get back less. The plan could be invested in different kinds of investments, which carry different levels of risk. This means the value of the plan can fall as well as rise, and this means it could be worth less than invested, and what individuals get back when they retire isn't guaranteed
  • Options at retirement will always depend on personal circumstances, and transferring won't always be right for everyone

For more information about tax and pensions, please read our Tax and Pensions guide

What the Trustee needs to do as part of a Trustee Buy-Out Plan

A Trustee Buy-Out Plan is a fairly major undertaking and as such it can be a daunting prospect for trustees. We can reassure you that Standard Life have carried out many such buy-outs and we’re here to help you at each step.

Here are the main tasks we understand you will need to consider as part of a wind-up and move to TBOP:

  • Communicate with your members – consulting, announcing the wind-up and giving written notice of their options, which may include election to transfer or have their benefits secured by Individual Plans. Note that it must include a default option if no selection is made.
  • Reinvest plan funds under a Trustee Buy-Out Plan with Standard Life.
  • Instruct Standard Life to secure members’ benefits after the consultation period by issuing Individual Plans to those members who selected (or if required, defaulted) to this option
  • Report the scheme wind-up to the Government tax department (HMRC) and to other regulatory bodies, who will notify you of other requirements.
  • Join your members to their new scheme via our digital platform.
  • Preparation and agreement of a Bulk Transfer Agreement

Where will my members' funds be invested?

At Standard Life, we offer an extensive range of investment funds, and 100% of each member's transferring fund is invested on behalf of your members. As well as the funds, we offer investment options called lifestyle profiles.

You can find out much more about all these on our Investments page.

You may wish to engage with an investment adviser to select an appropriate alternative investment fund for members from our range of funds. There is likely to be a cost for advice.

What next?