Stagecoach has agreed an innovative deal with financial services giant Aberdeen to transfer the bus company’s £1.2bn defined benefit (DB) pension scheme into a ‘run on’ arrangement.
Aberdeen will become the sponsoring employer of the Stagecoach Group Pension Scheme, taking on approximately 22,000 members. In an announcement to the stock exchange this morning, Aberdeen said the acquisition of the pension scheme was part of its strategy of “running on well-funded defined benefit schemes”.
The financial services company will manage the pension scheme’s assets and funding and will receive “a minority share of any future surplus”, it said.
It said members would benefit from a 1.5% boost to pension payments from the Stagecoach scheme’s existing surplus. They will also receive “better inflation protection”, Aberdeen said, as well as access to the company’s investment capabilities in productive assets.
Earlier this year, Aberdeen said it planned to ‘run on’ its own £2.5bn DB scheme to be able to share its surplus with members.
Stagecoach retains responsibility for sections of the Merseyside and Greater Manchester Local Government Pension Schemes, totalling £152m in assets and £128m in liabilities, according to the bus company’s latest annual report.
‘A natural meeting of minds’
John Hamilton, chair of the Stagecoach Group Pension Scheme trustee board, said: “Our objective was to consider what would provide the best pension outcomes for the scheme members.
“With a significant starting surplus in the scheme built up over many years and prospects for further sustained growth in the fund, our goal was to run on the pension scheme to provide better inflation protection and higher pensions for our members using the scheme assets under secure funding arrangements.
“The trustee had a natural meeting of minds with the team at Aberdeen. Their experience of achieving similar outcomes for their own scheme, a belief in the need for growth and productive assets, and the recognised strength of Aberdeen’s pensions and investment teams, all meant we were able to develop an innovative solution to deliver improved pension outcomes for our members.”
Aberdeen Group CEO Jason Windsor added that the transaction “aligns with the UK’s goal of making pension capital work harder for the economy”.
Stagecoach’s chief financial officer Bruce Dingwall said the move “gives us a clean break from the large defined benefit pension scheme, which supports our objective of simplifying our business”.
Innovative transaction expected to trigger more
PwC’s Iain Pearce, lead adviser on the deal, said: “This transaction is a great outcome for members, who are expected to receive material improvements over time, within a very low risk framework. We’re delighted to have led the advice, setting out the full range of options, agreeing on a preferred outcome, and then executing this innovative transaction.”
Hymans Robertson provided investment advice to the trustee board, and the firm’s head of pension policy innovation Calum Cooper said he expected more such deals in the future.
“This example highlights a continuing trend of well-funded DB schemes being viewed as an asset for their members and sponsor, in the right circumstances.”
Steve Hodder, LCP
“When it comes to surplus sharing, this deal asks the question: do members care more about what they can buy with their pension, or the actual amount of their pension?” he said.
“Ultimately, this trustee-led transaction found a way to put surplus to work with productive investments that meaningfully improve member outcomes today, and with the expectation of providing further improvements via surplus sharing in the future… Given the pensions policy, fiscal and political landscape, it will not be the last.”
Steve Hodder, a partner at LCP and lead adviser to Stagecoach, said transferring a scheme from one sponsor to another was an example of a “continuing trend of well-funded DB schemes being viewed as an asset for their members and sponsor, in the right circumstances”.
