Buy-out Aware

Every defined benefit pension scheme eventually needs to think about its endgame, when it considers how best to use its assets to provide member benefits. Schemes are increasingly considering a ‘buy-out’ solution, whereby they pay an insurance company to take on the scheme liabilities and pay out member benefits. Allowing an insurance company to take on the scheme risk, allows the trustees to reduce the resources dedicated to managing the scheme.

Preparing for buy-out

Schemes considering a full or partial buy-out, can prepare for the endgame by using a ‘buy-out aware’ investment strategy.

Such an investment strategy targets changes in buy-out pricing, with the ultimate aim of reducing buy-out costs. Building a buy-out aware portfolio implies investing in assets that are similar to the assets that a typical insurance company would use to price a buy-out. In this way, as buy-out pricing changes, a scheme’s assets should move in a similar way.

You can find details of how a buy-out aware investment strategy might be of use to your scheme buy reading our detailed brochure.


The LGIM Buy-out Aware Funds are designed to be used as part of a buy-out aware investment strategy by defined benefit (DB) pension schemes that are targeting a buy-in or a buy-out of some or all of their liabilities with an insurance company.

The asset allocation for these funds is based on an average liability profile appropriate to the specific buy-out aware fund objective. By considering the average liabilities of a typical defined benefit pension scheme, each fund will seek to broadly mitigate the relevant risk(s) for a large number of DB pension schemes at an acceptable cost. The profile of the average DB pension scheme cannot by definition be the same as for every individual DB pension scheme and therefore there is a risk that the objectives of these funds will not necessarily match each DB pension scheme’s member liability profile and/or investment time horizon.

These funds do not target a specific duration benchmark. Instead, to meet the objective of the fund, its duration will be a function of the duration of the underlying cash flow profiles that are referenced by each fund and these will therefore change over time in accordance with market conditions.

These funds cannot provide full protection against changes in the actual buy-out pricing for an individual DB pension scheme provided by a specific insurance company since these also depend upon a number of other factors, for example, an insurance company’s specific investment strategy, its longevity assumptions, the impact of insurance regulations and its pricing appetite.


This information is produced by Legal & General Investment Management (LGIM). The instruments used have a range of different risk profiles and these should be understood by pension schemes before making any investments. Pension schemes should ensure they obtain suitable professional advice. The information contained in this web page is not intended to be, nor should be, construed as investment advice nor deemed to be suitable to meet the needs of pension schemes.

This web page, and any information it contains, has been produced for use by the trustees of defined benefit pension schemes and their advisors only. It should not be distributed without the permission of Legal & General Investment Management Limited.

Legal & General Investment Management does not provide advice on the suitability of its products or services.

Legal & General Assurance (Pensions Management) Limited (“PMC”) is a life insurance company which carries on linked insurance business, it is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. As part of that business, it holds investments divided into separate sub-funds known as PF Sections. The value of each linked policy that it issues is determined by reference to the value of one or more of the PF Sections. LGIM is authorised and regulated by the Financial Conduct Authority, it provides investment and marketing services to PMC. The ultimate holding company is Legal & General Group Plc.

Legal & General Investment Management, One Coleman Street, London EC2R 5AA. Authorised and regulated by the Financial Conduct Authority.