Although these are often used to access extra capital, the PRA at the time said it was concerned that the changing dynamics of the market, in particular the number of bulk purchase annuity transactions, may create a "systemic vulnerability".
According to the PRA, insurers need to keep the regulator informed of any transactions and their risk management approach to them.
How safe are buyouts?
One provider FT Adviser has spoken to points out that more than 1mn pensions have been insured through bulk annuity purchase and buyouts.
The company spokesperson says an insurance company buyout is a “gold standard objective” for the pension scheme’s sponsoring company and the scheme’s trustees.
According to the spokesperson, insurance companies are required by law to hold large reserves and these capital requirements mean they are able to meet all financial commitments “even in extreme economic scenarios”.
The provider points out that, so far, no insurance company has defaulted on its buyout commitments, and it might be better than ending up with a 10 per cent haircut should the pension scheme fall into the PPF.
The provider warns: “More than 2,000 DB pension schemes have required support from the PPF, and when the PPF pays out, more than a quarter of a million people face a cut of 10 per cent or more to any benefits promised.
“A buyout should be viewed as excellent news for members of DB pension schemes as it is an insurance arrangement that protects their retirement benefits.
"It also means that they will receive long-term customer care as a policyholder of the insurance company.”
Keep calm and carry on
The general consensus remains that clients whose DB pension is bought out, or subject to a bulk annuity purchase deal, are fortunate.
Joshua Gerstler, a chartered financial planner and owner of the Orchard Practice, says: “If a client’s pension fund is being bought out, it is likely because the current trustees feel that they will not be able to afford to meet their obligations to you.
“Hopefully the purchaser is in a stronger financial position and will be able to fully pay your pension benefits upon retirement.”
David Robinson, adviser and co-founder of Wildcat Law, says: “Don't panic, and carry on as normal. This is a very mature marketplace now with well-established players.
“That means they know what they are doing from a pricing perspective, which in the long run is good for members of the scheme.
"The risk of systematic failure, while present, is a relatively small one and certainly not one to cause members to give up what many describe as 'gold-plated' schemes."
