Pension buyout policies: an insurer pays your pension instead

A pension buyout happens if your employer decides to pay an insurance company to run and pay your pension, so they can close down an existing scheme. 

Once the buyout policy is in place, the insurance company is responsible for paying your pension when you’re old enough and want to take your money. 

You usually cannot pay any more into a buyout policy, but all your existing rights are normally carried over – like the minimum age you can take your pension.

You might be able to arrange your own buyout policy, called a deferred annuity contract. This is where you use the value of your current pension to buy a future guaranteed income.

This is usually only worth considering if you:

• stop working for your employer (so your employer stops contributing) 

• don’t want to leave your pension where it is 

• don’t want to transfer your pension to a different pension provider or scheme.

For more information, see our guide about buying an annuity. 

If you’re worried about your pension closing, see Help if your pension scheme is closing (winding up).

If your employer is closing your defined benefit pension scheme (where you’re guaranteed a certain amount), your buyout policy will usually provide all the pension benefits you were promised.

If your defined contribution pension is closing, the insurer will usually continue to invest your pension money until you need it. This means the retirement income you’ll get from your buyout policy depends on how well the investments perform – in the same way your existing scheme would have worked.  

You can usually choose how to take your money, including taking up to 25% as a tax-free lump sum and converting the rest into guaranteed income. For all your options, see our guide about taking your defined contribution pension.

Your buyout policy might include a guaranteed minimum pension (GMP) if you: 

• worked between 1978 and 1997 and 

• contracted out of the Addition State Pension – often called the State Earnings Related Pension Scheme (SERPS).  

A guaranteed minimum pension is usually paid from age 60 for women and 65 for men. It will also normally provide an income to your spouse or civil partner if you die before them.