Frequently asked questions

Why should your clients consider buy-out as an option for removing risk?

Currently, pension fund trustees and their sponsoring companies are faced with a number of issues relating to the management of their defined benefit pension fund, these include:

increasing life expectancy
changes in pensions regulation
increased pressure on trustees
increased disclosure requirements

By transferring the mortality and investment risk, buy-out offers a way to resolve these issues.

What are the benefits of buy-out?

Managing risk. Buy-out solutions give your clients more options for managing pension fund related risks, including:

• removing mortality risk immediately, while retaining investment risk exposures to close deficits
• the opportunity to share in any beneficial future experience (e.g. life expectancy being shorter or the proportion of pensioners who are entitled to a spouse’s pension on death is lower than the number we expected)
• phased payment of premiums.

Reduced operating costs. Economies of scale allow for administration to be managed more efficiently than would be possible for an individual fund. Due to the scale built up by pooling pension funds into an insurance fund additional investment flexibility is also possible. This enables yields to be enhanced over the long term to the benefit of scheme members.

What are the benefits of transferring to Paternoster?

Total focus on defined benefit pension scheme management. All our people, systems and processes are concentrated on the pricing and transfer of defined benefit pension scheme assets and liabilities and the highest level of customer care.

Competitive pricing. Paternoster's cost base is structured to ensure that the minimum cost is incurred in preparing prices but at the current time we are not writing new business.  

Flexible solutions. We would be happy to discuss the different solutions suitable for your clients' schemes (click here for contact details). In summary they are:

• full buy-out in return for a one-off premium
• deferred buy-out over a period of time for a series of premium payments
• structured buy-out, for example, managing current employees on balance sheet, and transferring off balance sheet to Paternoster the risk of meeting the obligations to those employees who have already left service 
• share with us in any 'super profits' generated through pension fund investment out-performance or reductions in life expectancy.

A commitment to customer care. Scheme members transfer automatically to Paternoster and, following an initial communication, which gives them our full contact details and answers some of their questions, they will receive personal benefit statements from us on an annual basis. Our knowledgeable and experienced UK-based team are on hand Monday to Friday to answer questions on the phone or via email and post.

A cautious approach to risk management. Fundamental to Paternoster's investment strategy is the principle of asset liability matching. Asset cash-flows are targeted to match projected liability cash-flows. Where it is efficient to do so both interest rate and inflation swaps will be used to improve the quality of the matching. However for cost and counterparty risk reasons, not all matching will necessarily be achieved via swaps.

Long term security for scheme members. Our asset selection techniques and derivatives strategies (close matching of asset cash flows with scheme liabilities) ensure that the liabilities of a scheme will be appropriately matched over its lifecycle. As a regulated insurance company, Paternoster is required to hold substantial amounts of capital against the insurance business it writes and its members are protected by the Financial Services Compensation Scheme.

What size of scheme does Paternoster provide quotations for?

We are able to assess all sizes of schemes.  

What financial security does Paternoster offer?

As well as the money in our asset portfolio that we hold to pay pensions, as a regulated insurer we are also required to hold solvency capital as a prudent allowance in case people live longer, our investments do not perform as we expect or there are unexpected changes in interest rates and inflation over time. The combined value of the assets we hold is always more than the amount we need to pay the pensions - we are closely monitored by the FSA to ensure we comply with this requirement.  

We have strong internal governance processes to ensure that risks in the business are properly managed and that business is written on terms which ensure that financial security is preserved for both new and existing pensioners.  These include a pricing and investment committee structure as well as a Board approval process in relation to pension scheme transfer terms and ongoing risk appetite of the business.

How do I get a buy-out quotation from Paternoster?

In order for us to give a buyout quotation we will need:

• membership data
• a specification of the schemes benefit structure
• details of the schemes current asset holding scheme mortality data.

Click here to request a quotation.

What is the quotation process?

When we receive membership and scheme data we will discuss your clients’ objectives with you. Following this we will model the benefits through our pricing systems and prepare a report detailing the options available.

Will pensioners' policies/entitlements change when a scheme transfers to Paternoster?

A member's benefits will transfer to Paternoster on the terms agreed with the trustees. There would be no further changes to their entitlements following this original agreement.

If life expectancy continues to improve, what will happen if Paternoster finds that it has underestimated mortality and the deficits are bigger than first estimated?

Our team includes acknowledged expert in mortality (Richard Willets) whose track record shows a consistent prediction of mortality trends ahead of the market. Our approach to mortality pricing uses far greater analysis than is typically the case in the individual annuity market or in the market in general.

What is different about Paternoster's underwriting and approach to mortality?

Typically, the calculations for annuities are based on just three factors: date of birth, gender, and the pension amount. Paternoster has improved on these methodologies and uses a significantly broader range of information to construct its pricing model. We are also able to price individual member mortality within each pension scheme, allowing more accurate pricing as well as drive a prudent reserving basis.