Reuters Pension Fund completes £625m pensioner buy-in

2018 has been a record year for bulk annuity transactions. Pensioner buy-in pricing improved over 2017 and continues to achieve most pension schemes’ requirements for value, according to consultancy LCP.

For a company looking at a pensioner buy-in, they’re generally looking to take risk off, reduce the volatility in their balance sheet position, and effectively downsize the sort of scale of the pensions obligations they’re facing

Charlie Finch, LCP

The Reuters Pension Fund entered into a £625m full pensioner buy-in in August. Its December update to members stated that, “after an extensive review of the insurance market and potential providers, the scheme entered into a buy-in policy with Canada Life”.

The policy covers approximately 24 per cent of the pension fund’s liabilities, “and is an important step in reducing risk and moving towards fully securing all members’ benefits”, the update added.

Biggest transaction for Canada Life

The transaction has led to an improvement in the overall funding position, further improving member security.

It is the largest transaction so far by Canada Life, and the first in a framework of buy-ins for the scheme – covering the majority of pensioner liabilities in the circa £2.2bn pension fund.

The scheme’s chair of trustees, Greg Meekings, said: “This transaction has led to a major improvement to the security of our members' pensions by taking a significant amount of risk out of the scheme.”

Aon advised the on the transaction, while Sackers provided legal advice throughout the process, and Redington advised on the investment implications.

John Baines, head of bulk annuities at Aon, said he was “pleased to see Canada Life showing commitment to larger bulk annuity transactions - further increasing competition in the market".

More to come

Hymans Robertson announced in November that buy-ins and buyouts in the UK were set to pass £20bn for 2018, an increase of more than 50 per cent on the previous record in 2014.

Charlie Finch, partner at LCP, the consultancy that advised the company on the transaction, said insurers are targeting larger transactions, which "means more capacity for the market as a whole”.

He added that this recently announced Canada Life transaction "takes the total in the year in the public domain to over £20bn”.

Finch said that while 2018 is already around 50 per cent bigger than 2014 in terms of transactions, there will be “more to come” when insurers publish their full year results in early 2019 – confirming the total business written for 2018.

“For a company looking at a pensioner buy-in, they’re generally looking to take risk off, reduce the volatility in their balance sheet position, and effectively downsize the sort of scale of the pensions obligations they’re facing,” he said.

Plan ahead

Finch added that for “most of the transactions we work on, there will be a joint working group”, which includes trustee and company representatives.

Richard Butcher, managing director at professional trustee company PTL, said setting up a joint working group for transactions “depends really on what part the employer is playing in it”.

For example, if there is an additional funding requirement meaning that at the point of a buyout the employer pays a certain amount, “then quite often they’ll want to be involved in order to minimise the amount of additional spend that they have to incur”.

Similarly, “if the employer doesn’t feel that the trustees’ governance is quite up to scratch, that they will drive as hard a bargain as they should do, then they’ll want to be involved”, he added.

For buyouts in particular, Butcher stressed that planning is key. He said schemes need to make sure that their data is clean and up-to-date and that the trust deed and rules is unambiguous “so that it clearly defines what the liabilities are and what the stages are that you need to go through – that you have the power to do a buyout”.

Trustees must also make sure that the scheme’s assets are in the right place in terms of maintaining a stable funding position ahead of a buyout, Butcher said.

Furthermore, it is also important to think about governance. “How is a decision going to be made, who’s going to be making the decision, who’s going to be pressing the buttons, who do they have to consult with?"

Butcher noted that when it comes to preparing for a buy-in, “you absolutely don’t want to select a provider who is a risky provider, but you could afford to take a slightly lighter touch because you can always come back to it later on if you have to – on a buyout then the due diligence is much more thorough”.