09 October 2019

Analysis published recently by Lane Clark & Peacock shows that the total buy-in and buy-out volumes by UK pension schemes reached £17.6bn in the first half of 2019 with total volumes of £34bn over the 12-month period to 30 June 2019. This is the busiest 12-month period ever recorded, and is more than double the £14.9bn seen in the same period last year. September saw another two record buy-ins from Rothesay Life meaning that the last year has seen the five largest buy-in/out transactions ever, being:

  • £4.7bn buy-out by GEC 1972 Plan (Telent) with Rothesay Life in September 2019;
  • £4.6bn pensioner buy-out by Rolls Royce with Legal & General in June 2019; 
  • £4.4bn pensioner buy-in by British Airways with Legal & General in September 2018; 
  • £3.8bn buy-in by Allied Domecq (Pernod Ricard) with Rothesay Life in September 2019, and
  • £3.4bn buy-in by British American Tobacco with the Pension Insurance Corporation in May 2019.

Whilst these are the deals that have been grabbing the pensions headlines, in our experience, it is not just the bigger schemes that have been getting in on the action. Many trustees of smaller to mid-sized schemes have also been seizing the opportunity to reduce risk in their scheme by buying-in pensioner liabilities or even by working with the sponsor to remove the scheme’s liability from the company balance sheet altogether and buying-out all liabilities with an insurer before winding the scheme up. Improved affordability, driven by a tailing off in life expectancy, good asset performance and attractive insurer pricing has meant that a full buy-out is an achievable target for many more schemes and their sponsors. 

Over the last 18 months, our specialist de-risking team, led by Partner, Michael Hayles and Director, Catrin Young, has completed 22 buy-in projects and fully bought-out and wound up a further 11 schemes. We are currently working on 6 buy-in projects for trustees of defined benefit schemes and 9 buy-outs and scheme wind-ups for schemes with asset sizes ranging from £3 million to £400 million. We have also seen a marked increase in the number of occupational defined contribution schemes or defined contribution sections of hybrid schemes winding-up as many trustees are availing themselves of the opportunity to transfer all accrued scheme liabilities to an authorised master trust. Since 6 April last year and following the introduction of the master trust authorisation regime in October last year, such transfers can now be done without member consent and without an actuarial certificate.   

If your scheme is considering a buy-out or buy-in in the short to mid-term, what can you do to prepare? In a booming market, insurers can afford to be more selective regarding the schemes to which they will offer a quotation. Therefore, if you want to maximise the potential for a competitive tender process, you need to ensure your scheme is in good shape to make it attractive to as wide a range of insurers as possible. To achieve this, you should:

  • Reconcile your data. Dig out those old paper files or microfiche records, liaise with former administrators and write out to members to fill in any gaps or address any inconsistencies in your data.
  • Prepare a benefit specification for your scheme and get your lawyer to review it as early as possible to highlight any areas where administrative practice may not comply with the rules. Undertaking this work now avoids issues arising later in the process which can de-rail or delay a project. 
  • If your scheme holds GMPs, sponsors may wish to speak to their advisers about addressing GMP equalisation through statutory conversion and conducting a pension increase exchange exercise at the same time. The Lloyds judgment could offer trustees and sponsors a real opportunity to re-shape benefits in a way that could maximise insurer interest.
  • Most importantly, sponsors and trustees should work together (using a “joint working group”) so that they can show the insurance market there is a real commitment (from a time and a financial perspective) to get the transaction done. 

If you would be interested in finding out more please get in touch with a member of our specialist de-risking team or come and meet us at stand 500 at the PLSA Conference next week.

Key contact

Michael Hayles

Michael Hayles Partner

  • Pensions
  • Public Sector Pension Schemes
  • Financial Services

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