Pension risk transfer explained: how bulk annuities work

A pension risk transfer is when a company's final salary scheme pays an insurer to take on its pensions, as a buy-in or a full buy-out.

What is pension risk transfer, in plain terms? It is a deal between the people who run a defined benefit scheme and an insurance company, usually called a bulk annuity. The insurer takes over the job of paying pensions that the employer once stood behind. Has your scheme written to you about an insurer deal? An FCA-authorised adviser can say what it means for your own pension, free of cost, after you finish the form on this page.

What pension risk transfer means, and where a bulk annuity fits

Pension risk transfer is the umbrella term. It covers the ways a scheme can hand the risks of paying promised pensions, such as members living longer than expected, to an insurer. The Pensions Regulator (TPR) lists insuring benefits with an insurance company, through buy-ins and buy-outs, among the options open to trustees. The insurance contract that sits behind either one is the bulk annuity: one policy covering many members at once, unlike the annuity a person buys with their own pot (see how a pension annuity works).

The trustees, who TPR expects to take professional advice, are the ones who arrange it. Your pension rights come from the scheme's rules, and the insurer takes on paying the benefits those rules set out. For the scheme itself, what a final salary pension is sets out the promise being insured.

Buy-in or buy-out: what is the difference?

The difference is who is legally responsible for paying you afterwards. TPR describes a buy-in as "a form of partial risk transfer which can help secure benefits in the scheme". The scheme pays a premium and the insurer agrees to pay an income to the scheme to cover the insured members' benefits. The trustees remain legally responsible for paying the member, and the policy becomes an asset held by the scheme.

A buy-out goes further. In TPR's words it is "a complete risk transfer (subject to certain residual risks) where, in return for receiving a premium, an insurer becomes directly responsible for paying members' pensions". After that, "the trustees can then wind up the scheme and sever the link with the employer."

• Buy-in: the scheme carries on, owns the policy, and still pays members. It may cover only some members, often those already retired, though TPR says deferred members can now be covered too.
• Buy-out: the insurer pays members directly and the scheme is wound up.
• Together: a buy-in can be the first step towards a buy-out, and a scheme can do several buy-ins in stages before the final one.

What changes for members when a scheme buys in or buys out?

After a buy-out, your pension is paid by the insurer rather than by the scheme. TPR's guidance says members "should be informed that the insurer is taking responsibility to pay for their benefits". Your letter from the trustees is the place to find out who the insurer is, when payments move and who to contact.

What should stay the same is the benefit the scheme rules promise. What can change is around the edges. TPR notes that "buy-ins may affect the provision of discretionary benefits", and tells trustees to consider how "member options, such as cash commutation and transfer terms, might be affected by the terms of the risk transfer". So the questions worth asking the trustees are whether any extras you have been getting continue, whether you can still take a tax-free lump sum in the same way, and what happens to a spouse's or partner's pension. How a scheme's own death benefits carry across depends on its rules; what happens to a final salary pension on death covers the usual picture.

Setting a letter like that beside your own plans, such as retiring early or providing for a partner, suits a talk with an adviser, and the call-back requested through the enquiry form here costs nothing.

Is my pension protected: Pension Protection Fund or FSCS?

It depends on where the pension sits. Before a buy-out, and that includes after a buy-in, your pension is still owed by an occupational scheme backed by an employer. GOV.UK says you are "usually protected by the Pension Protection Fund if your employer goes bust and cannot pay your pension". The Financial Services Compensation Scheme (FSCS) draws the same line from its side: "We can't protect Occupational Pension Schemes (OPS) if they fail." It points to the PPF for those.

After a buy-out, TPR says the insurer becomes directly responsible for paying your pension, so the question is whether FSCS protection for insurers applies. FSCS says "Generally, FSCS can protect pensions that are provided by UK-regulated insurers, as long as they qualify as 'contracts of long-term insurance'. A common example is an annuity". It adds that "Where FSCS can pay compensation, we will cover the pension at 100% with no upper cap." That is FSCS's general position for pensions from UK-regulated insurers; whether pensions are protected in the UK sets out the capped cases, such as SIPPs.

FSCS is also clear about the limit of what it can say: "We cannot confirm whether individual plans with specific providers would be classed as 'contracts of long-term insurance' or not – you would need to speak to your provider directly." After a buy-out, that provider is the insurer now paying you; an adviser can talk through the effect on your pension, free, after a request through the enquiry form here.

The two safety nets are not the same thing, and no one should treat a move from one to the other as a like-for-like swap without reading the detail. If an insurer ever failed, what happens if an annuity provider goes bust covers the FSCS side. For the PPF side see how the Pension Protection Fund works and whether final salary pensions are protected.

Why do schemes do it, and is it the only option?

Insuring the pensions takes risk off the employer and the scheme. TPR says that for many years a buy-out had generally been the endgame for many trustees and their scheme employers, but also that "as a regulator we do not consider insurer buy-out to be the only option for trustees to consider". Running the scheme on is another, and so are DB superfunds, which TPR describes as scheme consolidators that take on a transferring scheme's liabilities.

Cost is part of the choice. TPR says the buy-out premium reflects the insurer's charge for insuring almost all the risk and its profit margin, so securing benefits fully can cost more than is needed to run on. A scheme of any size can buy out if it is sufficiently funded, according to TPR, though pricing varies by size and by the make-up of the membership. That is the pension risk transfer market: TPR notes that some insurers have solutions aimed at smaller schemes, and that advisory firms have built ways to help smaller schemes reach it. If a scheme merges with another or moves to a superfund, that is a different transaction from a buy-in or buy-out: the pensions move to another scheme rather than to an insurer.

A risk transfer is not a transfer out of your pension

Do not confuse the two. In a risk transfer the scheme moves its liabilities to an insurer and your rights carry on as an insured pension. A transfer out is your own choice to move your pension to another arrangement. The FCA says that it and TPR "believe it's in most people's best interests to keep their DB pension", and that a transfer cannot be reversed. Moving safeguarded benefits out of a scheme brings an advice check, which the trustees or managers need not carry out where the transfer value is £30,000 or less; that is regulation 5 of SI 2015/742 on legislation.gov.uk, as substituted from 6 April 2018. Should I transfer my final salary pension? looks at the trade-offs, and what a good transfer value looks like goes into the figure itself.

Treat any unexpected call or message about your pension with caution, and check it with the trustees first. The FCA explains the warning signs on its pension scams page.

What else people ask about pension risk transfers

Does a buy-out end my employer's responsibility?

TPR says that after a buy-out the trustees can wind up the scheme and sever the link with the employer. From then on the insurer, not the employer, is the one paying you.

Can any scheme buy out?

TPR says a scheme of any size can, as long as it is sufficiently funded. Schemes that are not may look at the other options above, or at running on.

How do I find out if my scheme has done a buy-in?

Ask the trustees or the scheme administrator: TPR's guidance treats a buy-in policy as an asset of the scheme, with the trustees still responsible for paying you. If you are unsure the pension is a final salary one at all, checking whether yours is a final salary scheme is a quick first step.

Will the amount I am paid change?

The insurer takes on the benefits the scheme promised, as TPR describes it. Extras the trustees pay at their discretion are the area TPR flags, so ask about those.

Is Pension Wise any use here?

MoneyHelper's Pension Wise appointments are free, but they are written for people with a UK-based defined contribution pension. For a final salary pension, the scheme's own letter and the trustees are the first stop; what Pension Wise is explains who it covers.

Where can I read more about what a scheme's options are?

TPR's guidance for trustees, New models and options in defined benefit pensions schemes (published 3 June 2025), is public. To go through your own scheme's detail, use the enquiry form here; an adviser will phone you, and the conversation is free.