The birth of the buy-in: Reflections on 20 years of Pension Risk Transfer

Buy-ins are now well-established and regularly dominate the headlines in the pensions press. But that has not always been the case.

In this article, I reflect on how the buy-in came into being and why it has become the route of choice for many pension schemes.

Take yourself back to March 2006. A small group of us at LCP was contemplating what the recent launch of a wave of new insurers seeking approval to write bulk annuities could mean for DB schemes. We saw potential benefit for trustees and sponsors, and so our Pension Risk Transfer practice was born.

Today, we have a thriving market with 10+ insurers and around £40bn of liabilities insured by trustees last year alone. This compares to the position prior to 2006 when there were just two insurers writing about £1bn per year.

The genesis of the new insurers joining the market in 2006 had occurred three years earlier. In June 2003, following scandals where solvent companies walked away from underfunded DB schemes, the UK government ruled that sponsors could only exit their schemes once fully funded on a buy-out basis.

The ramifications were long-term and set in stone by the Pensions Act 2004. With few exceptions, most DB schemes at the time faced massive buy-out deficits. The new rules of the game were clear: wind-up was only an option once buy-out funded.

But back in 2006, we wondered: could there be a win-win for trustees and sponsors utilising these new insurers, even for schemes far from buy-out? We envisioned the extra competition creating an economically priced insurance product that could protect schemes against rising life expectancies—even for just a portion of each scheme’s liabilities—that could serve as a stepping stone to further insurance in the future, with no obligation on when (or even if) future transactions were completed.

The modern buy-in was born.

Birth of the modern buy-in

There is a strong claim that the first modern partial buy-in was transacted at the end of 2006 by the Hunting Pension Scheme, covering the pensioner liabilities of the Scheme. It included specific provisions catering to the Pensions Act 2004, setting the contract apart from previous bulk annuities and allowing it to be treated as an investment for the benefit of all members ahead of any future buy-out.

Incidentally, when we helped the Hunting Trustee secure this transaction in 2006, the the term buy-in hadn't been coined at that point! But the trustees wanted it to be clear that it wasn’t a “buy-out” and so when an enlightened trustee who understood the significance of the policy being a trustee investment made the link to carry across the “in” from the word investment into the new term buy-in, the phrase we are all now familiar with was born.

Alongside Hunting’s auditors, we helped to pioneer the framework for recognising buy-ins under the newly introduced FRS17 accounting standard (now IAS19) to avoid a direct P&L impact. This was key in paving the way for the wave of buy-ins that followed.

An almighty test: the Global Financial Crisis

For the early purchasers of buy-ins, the Global Financial Crisis (GFC) in 2008/09 provided a significant early test, as it did for all financial institutions globally. While some banks faltered, UK insurance companies stood firm. The multiple layers of protection within the insurance regime worked as intended, and helped the UK bulk annuity insurers to weather the storm.

I’d draw out the fortunes of two insurers in the UK bulk annuity market in particular and how the regime provided security for policyholders:

• ALICO (AIG’s historic international arm): When the US parent conglomerate required a massive US government bailout in September 2008, the parent company sought cash from within the wider AIG group. However, the regulatory shield around the UK bulk annuity entity kept those monies safely ringfenced. (Today, those original UK policyholders sit securely with Rothesay.)
• Paternoster: In 2009, the FSA (predecessor to the PRA) increased reserving requirements in the wake of the GFC. Paternoster had to use excess capital allocated for new business to strengthen its reserves and agreed with the FSA to close its doors to new transactions. As a result, the business maintained its solvency and members received their benefits in full; the key losers were shareholders when the business was sold to Rothesay in 2011 for £260m (against the £500m original investment commitment).

Crucially, the crisis validated the regulatory and balance sheet model underpinning bulk annuities, and add to this that today’s insurance capital regime is significantly stronger than that in place during the GFC. In my view, it is the resilience and active risk management against financial tail risks that remains a key draw for many of the schemes choosing insurance today.

Innovation and expanding market access

The post-GFC period from 2010 onwards was characterised by structuring innovation for larger schemes and the pursuit of efficiency for smaller ones. I recall how we collaborated closely with schemes large and small who were breaking new ground in the market, and the following stand out in my mind:

• ICI Pension Fund (from 2013): We helped the Trustee to design and realise an "umbrella contract," providing master terms for all future buy-ins the Fund chose to write. This allowed the Trustee to be nimble and seize short-lived pricing opportunities (like post-Brexit and Covid-19), and lock in exceptional pricing for the long-term benefit of Fund members. This model has been followed by nearly all other large schemes seeking to enter into a series of buy-ins.
• Philips Pension Fund (2013-2015): Working alongside the Philips Trustee, we navigated their £3.5bn full insurance journey across three insurers, resulting in them becoming the first multi-billion scheme to reach buy-out and wind-up in the new era.
• Streamlined Buy-in Service (from 2011): For smaller schemes, we developed the market’s first streamlined buy-in contract in 2011. This gave smaller schemes cost-effective access to pre-negotiated terms usually reserved for larger schemes. By the end of 2025, this streamlined approach had helped over 100 small schemes to purchase over £5bn of buy-ins across these transactions.

All change: The pendulum swings to full buy-outs

At the start of the 2020s, the buy-in market shifted dramatically. In 2016, 25% of transactions were full buy-ins with 75% partial buy-ins. Today, over 95% of transactions are full buy-ins.

The trigger? The almost universal improvement in DB scheme funding levels from late 2021 through 2023. While the now infamous September 2022 mini-budget was a high-profile catalyst of this, real interest rates had already been rising for 12 months—this helped DB funding levels to surge by 10-15% for the average scheme, making insurance affordable for a huge tranche of schemes well ahead of expectations.

This ushered in the £40bn-£50bn per annum buy-in market we have today. Looking back at the mega-deals of this era, standout market milestones include RSA insuring £6.5bn with PIC (pioneering illiquid asset transfers at scale), the £7.5bn British Steel scheme reaching full insurance across four buy-ins with L&G, and Rolls-Royce securing a £4.3bn market-leading "member-first” buy-in with PIC. Having had the privilege as a firm to advise on these landmark transactions, it is clear that trustees, sponsors and insurers have continually raised the bar for what schemes can achieve through insurance.

Looking to the future

Today is an exciting time for pension schemes to be considering their endgame options. Around half of schemes are fully funded against a full buy-out, giving them the optionality to choose between insuring now, insuring after a period of run-on, running-on indefinitely, or considering alternative options like the Stagecoach/Aberdeen sponsor transfer.

For schemes focusing on buy-ins, new investors for Just (Brookfield) and PIC (Athora) are bringing fresh capital and asset-sourcing capabilities to the market, helping to keep pricing for pension schemes at the strongest levels we've seen in years.

However, the biggest immediate challenge is transitioning buy-ins through to buy-out efficiently. With over 300,000 members due to transfer to buy-out in 2026, administration capacity bottlenecks remain a challenge to address. Yet, the prize for schemes reaching buy-out over the coming years is to reap the benefits of the huge investments in member service and technology platforms that we have seen across the board from insurers.

Final words

We have certainly come a long way in the past 20 years, from the concept of the modern buy-in into a thriving market where insurers offer a combination of attractive pricing, long-term financial security, and investment in member services. DB trustees and sponsors therefore have a safe harbour available for their members at whatever point in the lifetime of their scheme they choose to access it.

This article was first published in Professional Pensions on 15 April 2026.