Marks & Spencer Pension Scheme secures buy-ins totalling £1.4bn

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The Trustee of the Marks & Spencer Pension Scheme has purchased pensioner buy-in policies with both Aviva and Phoenix Life totalling £1.4bn. The insurance policies cover around a third of the Scheme’s pensioner liabilities.

LCP led the advice to the Trustee on the transactions, having been appointed to advise the Trustee on its strategy to reduce the Scheme’s longevity risk. Linklaters provided legal advice to the Trustee in preparing for and executing the transactions.

The Scheme’s strong funding position has allowed the Trustee, working in collaboration with its sponsoring employer, Marks & Spencer, to steadily de-risk its overall investment strategy into assets and hedging instruments that more closely match the pension payments due to its members. The purchase of buy-ins has allowed the Scheme to match benefit cash flows and remove longevity risk for a portion of the pensioner population within the security of regulated insurance policies, all at an attractive price.

This attractive pricing was achieved through thorough preparation by the Trustee and simultaneous engagement with both buy-in providers and longevity reinsurers in a transparent and efficient process.

The Trustee is now well-positioned to take advantage of future attractive pricing opportunities either through further buy-ins or longevity swaps. Both transactions were executed using umbrella master agreements and transaction schedules. The Trustee can now move quickly to complete further buy-ins either with these two insurers or other market participants.

Simon Lee, CIO of the M&S Pension Scheme commented: “We are delighted to have secured these insurance policies for a significant portion of the benefits payable to our members. We were able to do so at attractive pricing and on favourable terms through significant competitive tension and a process led by LCP and Linklaters and supported by the Scheme Actuary and investment advisers, Willis Towers Watson, that has now positioned the M&S Pension Scheme to execute efficiently with these and other insurers in the future.”

Myles Pink, partner at LCP, said: “The cost of longevity risk removal – whether through buy-ins or longevity swaps – is at its lowest for ten years. Insurers and reinsurers have now recognised the recent trend of slowing longevity improvement rates and this means there are favourable pricing opportunities available for well-prepared pension schemes. The M&S Pension Scheme has been able to pick up the longevity risk removal, cash flow matching and other protections brought through buy-ins at a price that improves the overall yield in its asset portfolio.”

Michelle Wright, partner at LCP added: “The M&S Pension Scheme is another great example of how even the largest schemes can use insurance as an effective component of their de-risking toolkit. The Scheme’s £1.4bn buy-ins mark the start of the busy 2018 that has been predicted and within this increasingly busier market, M&S is now a ‘go-to’ scheme for insurers to offer future de-risking opportunities at attractive pricing.”