Phased de-risking leading to full buy-out
We completed an initial buy-in with the Philips Pension Fund, followed by another two buy-ins in 2014 which helped prepare them for a full buy-out in November 2015.
- £3.5bn UK pension plan with c30,000 members
- Mature plan: two thirds of liabilities in payment
- Nearly fully hedged against interest rates and inflation
- Complex benefit structure: long history with numerous amendments to trust deed and rules
- Three Trustee-led buy-ins completed in 2013/2014 as stepping stones towards full buy-out
- In September 2014, Philips announced a demerger to separate its lighting division and its healthcare and consumer lifestyle division, due for completion in 2016
- Proposal from Philips in 2015 to make a substantial cash injection to facilitate a full buy-out with Pension Insurance Corporation
Our specialist de-risking team helped the Trustees to be a “go-to” pension plan. This meant they were ideally positioned to seize pricing opportunities on strong terms through preparation, experience and relationships with insurers.
- Decision to use buy-ins rather than longevity swaps as part of the broader de-risking plan (driven by investment strategy and time horizon)
- Identified optimal size and types of transactions
- Aligned investment strategy to a portfolio an insurer would wish to receive
Residual risks cover
Initial buy-ins included carefully structured protections:
- Protect members from any errors in data and benefit specification
- Suitable approach for GMP equalisation
- Ensure historical discretions and augmentations protected
- August 2013 - £484m buy-in with Rothesay Life for a 'large pension' pensioner subset
- June 2014 - £300m buy-in with Prudential for a subset of younger pensioners
- September 2014 - £310m buy-in with Prudential for a cross section of pensioners
- November 2015 - £2.4bn final buy-in
Final transaction dove-tailed with the initial transactions to provide comprehensive risk removal for the Trustees and Philips.
In late 2015, we helped the Trustee respond to the buy-out proposal. Liabilities were fully settled following a £225m (approximate) corporate contribution.
LCP worked with the Trustees to set a high bar for the first three buy-ins and helped us to actively engage with the full buy-out proposal from Philips to achieve the right outcome for our members