In 2011 the Trustee agreed with the sponsor a long-term target and put in place a detailed journey plan framework to reach buy-out by 2026. As part of this it completed a c£350m buy-in covering a cross-section of pensioners with Legal & General in 2012. The buy-in was tailored to fit within the wider plan with 3 in 7 pensioners covered.
In 2018, LCP identified that the buy-out position had improved significantly on the back of revised insurer views on longevity and strong asset performance, and there was a potential opportunity to insure all remaining liabilities within existing contribution commitments.
A Joint Working Party of Trustee and Company representatives was established and, working with LCP, undertook a feasibility analysis covering full insurance, the preparatory work required and key considerations. Targeted work was undertaken on the membership data and benefit specification and the asset strategy re-positioned to facilitate a transaction with less liquid investments sold ahead of time. One unusual feature of the plan is that it equalised GMPs in the ‘90s using a year-on-year method. Steps were undertaken to ensure that this was presented clearly to the insurers. This was important to maximise engagement of the insurers who, with limited experience of operating GMP equalisation, could otherwise have focussed elsewhere given the significant volume of opportunities in 2019.
The Trustee ran a successful process insuring its remaining liabilities with Legal & General through a c£930m buy-in in July 2019. This was achieved seven years ahead of schedule and the final price improved compared to initial estimates allowing the Company to cease contributions into the Scheme from 2021.
What can others learn from this?
“Journey planning” isn’t just jargon – it really makes a difference to have a well-defined plan. Having a well-articulated de-risking strategy impacted the Trustee’s decisions throughout their journey. They increased hedging early and chose to retain liquidity within the asset portfolio, which all contributed to the ultimate success. This also helped the Scheme to stand out in an exceptionally busy insurance market last year.
LCP helped us to identify the opportunity to fully insure seven
years early. They worked collaboratively to help us to design
and implement our journey plan across funding, investment
and de-risking, and really could not have done more to help us
achieve our objectives.
How we can help
We are market leaders at each stage of de-risking, including planning, investment strategy, transactional services and wind up.