The ICI Pension Fund has entered into a record breaking £3.6bn buy-in across separate transactions with two different insurers – Legal & General (L&G) and Prudential.
The deal is the largest bulk annuity deal by a UK pension scheme to date, taking the total business written in 2014 to over £9bn.
The deal follows a six-month competitive tender process after which L&G and Prudential were selected so the fund could split the transaction across two insurers to achieve its desired scale. L&G has transacted £3bn of the total.
The liabilities covered by the policy are a subset of the fund’s pensioner population and were selected to ensure the optimum balance between risk reduction and economic value for the fund, according to L&G. Members will see no change to the way their pensions are paid, or the way in which the pension scheme is administered.
ICI Pension Fund trustee chairman David Gee said: “I’m delighted that the trustee has achieved such a significant step in its strategy to further reduce risk in the fund. Members can be reassured that this will improve the security of their benefits by substantially reducing longevity risk for the fund.”
ICI Pension Fund chief executive Heath Mottram added: “Investment in these buy-in policies builds on the fund’s strong de-risking foundations. The transactions are the result of significant work by the trustee over the last six months including a thorough selection process and negotiation of competitive pricing and terms.”
LCP was lead adviser to the trustees. Partner Clive Wellsteed said: “At £3bn, this landmark transaction is the largest of its kind to date, with the fund using its scale to negotiate competitive terms, reduce risk and enhance member security. It demonstrates the appetite of mature final salary schemes to de-risk their pensioner liabilities and shows how transactions can be successfully structured at a scale not previously seen.”
Towers Watson advised the scheme sponsor, AkzoNobel. Senior consultant Ian Aley said: “These transactions show that even the largest pension schemes can use the bulk annuity market to materially reduce risk. Due to the size of these transactions, the approach used differs from most other bulk annuities to date. Firstly, the fund split the transaction across two insurers to achieve their desired scale. Secondly, the insurers have sought to reinsure the majority of the longevity risk immediately. This two-stage process is routinely used in the longevity swap market, however to date the insurers in the bulk annuity market have generally held the risk for a period of time before reinsuring.”
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