The Cookson Group Pension Plan has signed a £320m buy-in deal with Pension Insurance Corporation.
The transaction covers the UK plan’s pensioner liabilities – approximately 60% of the total liabilities – with the insurance premium met from existing assets of the UK plan. The plan has 3300 pensioner members.
The materials and technology firm said de-risking the UK plan in this way – by removing the inflation, longevity and interest rate risks for the insured liabilities – will significantly reduce the level of volatility to which it is exposed in future pension funding costs through its sponsorship of the fund.
The deal, advised by consultant Aon Hewitt, follows the conclusion of an enhanced transfer value offer to members earlier this year, which the firm claimed significantly reduced the UK plan’s deferred member liabilities.
Trustee chairman Allan Course said: “The trustee has completed a pensioner buy-in following consultation with Cookson Group and with advice from Aon Hewitt. The buy-in means that the UK plan is now fully protected against interest rate, inflation and longevity risks in relation to a significant proportion of its liabilities. This provides an additional level of security for members.”
The bulk annuity market has been relatively slow so far this year, but industry experts believe the second half of 2012 will see a marked increase in buyout and buy-in deals due to the rising price of gilt yields.
Pension Corporation co-head of business origination Jay Shah said: “While pension scheme funding levels have generally been impacted by poor equity markets and low interest rates, the large number of pensioner buy-ins completed recently have been driven by the increase in value of gilts and bonds, allowing those schemes whose liabilities are at least partly matched with these assets to insure significant levels of risk. This allows the company sponsors and their shareholders to lower their exposure to future pension scheme funding volatility.”
Aon Hewitt risk settlement principal Paul Belok, who advised the scheme and ran the competitive review, added: “After a relatively quiet start to 2012 – following a particularly strong end to 2011 – this is the biggest transaction of the year in the bulk annuity market. We are aware of a reasonable level of activity currently taking place and can expect to see some more sizeable deals by the end of the calendar year.
“In particular, we are seeing interest from schemes looking to take advantage of the currently attractive bulk annuity pricing relative to gilt yields.”
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