How the Plumbers Scheme reduced sponsor risk through a £570m pensioner buy-in

The background

In 2016, the Trustee was advised that a buy-in could be accommodated within the plan’s investment and funding strategy and would reduce both longevity and investment risks.

The plan has had some coverage in the press in relation to section 75 employer debt legislation. The Trustee has lobbied the Government to reform the legislation, with the aim being to reduce the burden of the debt on non-associated employers whose only connection to each other is that they operate in the same industry.

The Plumbing & Mechanical Services (UK) Industry Pension Scheme was set up in 1975 and has had over 4,000 employers during its history.

It currently has over 350 contributing employers, around 35,000 members and just under £2bn of assets.

Our solution

Appointment of a specialist buy-in adviser

The Trustee appointed LCP as a specialist buy-in adviser in late 2016 to work alongside the plan’s existing advisers to advise on the structuring and execution of a buy-in, potentially covering all pensions in payment.

A process designed to optimise pricing

The process was structured to obtain pricing from six insurers in order to maximise competitive tension and obtain the best pricing. The Trustee focus on price was driven by the belief that an insurer’s covenant (with no collateral structure) would be a material improvement for the security of members’ benefits. The result was pricing at some of the most attractive levels that we have seen in the last few years, which was partly driven by strong appetite from reinsurers. The attractive pricing meant that the plan could afford to insure all pensions in payment.

Minimal execution risk

The plan also benefited during the execution phase from a full price-lock to units in a pooled credit fund. This is usually difficult to secure, as the insurer has limited visibility over the disinvestment proceeds when the units are sold. The robust price-lock meant that the pricing was locked-in quickly with no additional transition or restructuring costs for the pension plan.

The results

A £570m pensioner buy-in with Legal and General, covering all pensioners. Reduced resilience on the sponsor covenant, significantly increasing the security of benefits. Removal of a material amount of risk for the sponsoring employers.

"The challenges facing our Plumbing Industry Pension Scheme have been well chronicled. The buy-in is the result of clear decisions taken by the trustees, hard work by our executive team and an adviser line-up second to none in the team working stakes. As a result, we can announce a good news pension story – a rarity these days. Employers and members alike will benefit from the increased security which this policy brings."

Alan Pickering, Chairman of the Trustee

A more stable funding position going forwards, which is particularly valuable in light of the current section 75 employer debt legislation.

Working with us

In this video, Peter Thompson shares his personal experiences of working with us throughout his years as a professional trustee. Find out more about our client promise here.