What is BPA?
Key Features
- Purpose: Transfer pension scheme liabilities to insurers to manage longevity risk and investment volatility, in line with PRA regulations
- Structure: Single premium payment for a group annuity policy covering multiple members
- Scale: Typically used for defined benefit (DB) schemes with hundreds or thousands of pensioners
How It Works
- Scheme trustees pay a lump sum to a UK-regulated insurer (e.g., Aviva, Legal & General)
- Insurer assumes responsibility for paying scheme benefits under FCA rules
- Benefits transferred via a buy-in or buy-out policy
Key Benefits
- Removes longevity risk from the sponsor's balance sheet
- Reduces PPF levy exposure for pension schemes
- Payments protected by FSCS up to £85,000 per policyholder
Example Scenario
A FTSE 100 company transfers £400 million in DB pension liabilities to a UK insurer. The insurer becomes responsible for paying 5,000 pensioners their monthly benefits, while the company removes the liability from its accounts and stabilises future costs.
Important Considerations
- Requires FCA/PRA-regulated insurer approval
- Trustees must follow TPR guidance on risk transfers
- Pricing reflects gilt yields and UK longevity projections