Data crunch: The volume of bulk annuity transactions edged downwards towards the end of last year, according to new research, although buy-ins and buyout deals rose between Q3 and Q4.
In the final quarter of 2021, MandateWire reported on the activities of 36 UK corporate pension schemes, including one of the largest bulk annuity transactions of the year.
Additionally, several pension funds revealed their ambitions to reach net zero carbon emissions.
According to MandateWire data, the number of bulk annuity transactions signed by UK corporate pension funds in Q4 2021 dropped to 12 from 17 in Q3.
This buy-in is an important step in our long-term strategy and significantly reduces risk in the scheme, thereby providing greater certainty about the future costs of providing members’ pensions
Lisa Shufflebottom, Sanofi Pension Scheme
However, the total volume of the buy-in and buyout transactions agreed in Q4 was $7.3bn (£5.4bn), which is $800mn higher than the $6.5bn tracked in Q3.
The largest transaction of the quarter was a £2.2bn buy-in completed between the Metal Box Pension Scheme and Pension Insurance Corporation, which was subsequently converted to a buyout.
Mitul Magudia, head of business development at PIC, noted this was one of the largest transactions of 2021. He said: “We expect this transaction to form a blueprint for others looking to achieve similar objectives in the future.”
Legal & General was the most popular insurer during the fourth quarter, securing half of the deals agreed. In total, L&G insured $3.1bn of pension liabilities.
This included a £760mn buy-in with the £3.1bn Sanofi Pension Scheme. Lisa Shufflebottom, trustee secretary, commented: “This buy-in is an important step in our long-term strategy and significantly reduces risk in the scheme, thereby providing greater certainty about the future costs of providing members’ pensions.”
Fiduciary mandates
During Q4, four mandates were awarded by UK corporate pension schemes, all for fiduciary management.
In November, the £1.7bn Honda Group UK Pension Scheme selected Mercer as its fiduciary manager. The appointment was made following a review of the scheme’s governance approach.
Mercer will provide operational and implementation support to help the scheme focus on its strategic funding objectives.
Mike Godfrey, chair of the Honda trustee investment sub-committee, said the “continued integration of environmental, social and governance and climate change considerations into our investment strategy” had been key to the manager’s appointment.
Kempen Capital Management secured fiduciary management contracts with three schemes. These included the SKr2.4bn Arjo UK Pension Scheme, which appointed the manager to take over the brief from Aon.
Bob Lock, chair of trustees, said: “We liked Kempen’s investment strategy as it best fitted our flight plan and focused on investing in more longer-term funds.”
Additionally, the £86mn Laurel Pub Pension Scheme and its sister, the £14mn Yates Group Pension Scheme, appointed Kempen as their fiduciary manager during the fourth quarter.
The manager will work with the schemes to implement a collaborative investment strategy and work to achieve the schemes’ and sponsoring employer’s funding objectives and journey to full funding.
Net zero commitments
During Q4, the Tesco PLC Pension Scheme and the Tesco Retirement Savings Plan, which together have assets of over £24bn, announced their commitment to reach net zero carbon emissions by no later than 2050.
A statement from the schemes said they would use their scale and influence to encourage the companies they invest in to reduce their carbon emissions over time, setting interim targets and milestones along the way to 2050.
Derisking activity ramps up in Q3
Derisking activity picked up in the third quarter of 2021, as bulk annuity transactions reached their highest point of the year.
“Evidence shows that environmentally responsible, well-run companies are likely to perform better in the long term, and better-performing companies tend to be better investments,” Ruston Smith, chair of the Tesco Pension Fund, said.
The £13.1bn Transport for London Pension Fund also revealed it has committed to delivering an ambitious net zero plan for carbon emissions.
The scheme said: “The fund will rebalance its investments to more sustainable products, which produce less carbon or use less energy, achieving a 55 per cent reduction in carbon emissions by no later than 2030 (versus a 2016 baseline) and a 100 per cent reduction no later than 2045.
