On the go: The £1.1bn AIB Group UK Pension Scheme has agreed a £61m deal with Legal & General Assurance Society that will see a tranche of an existing assured payment policy converted into a buy-in policy.
The transaction sees around 20 per cent of the original £250m APP transaction, signed in 2019, converted to a buy-in. The deal covers both deferred members and new retirees and marks the first time an APP has been converted to a buy-in, according to L&G.
As Pensions Expert reported at the time, the AIB scheme was the first defined benefit scheme to undertake this alternative derisking solution.
An APP is similar to a buy-in, but does not cover longevity risk. In exchange for a premium paid to the insurer, the scheme will receive a stream of cash flows that match its liability profile and vary with changes, such as in interest rates or inflation.
With insurer capital backing the contract, this therefore removes investment risk to a fuller extent than schemes can achieve by managing assets themselves in a liability-driven investment solution.
The buy-in, announced on Thursday, did not require any additional funding from the scheme sponsor.
As the APP already covered investment risk for the covered cash flows, an additional premium payable by the trustee for the conversion was only in respect of the additional risks, principally longevity, which are now being passed to L&G.
Norbert Bannon, chair of the trustee of the AIB Group UK Pension Scheme, welcomed the completion of the first annual conversion of the APP.
He said: “This transaction represents further substantial progress in derisking the scheme and improving the security of members’ benefits.”
The trustee was advised on the transaction by Mercer, with Sackers providing legal advice.
This article originally appeared on MandateWire.com
