KEY FACTS

  • The benefits of c.12,300 members of the Asda Group Pension Scheme were secured with a bulk annuity, providing increased certainty and security of members’ benefits.
  • The £3.8bn transaction was enabled by a one-off final pension contribution from Asda of c.£0.8bn.
  • A single premium transaction with residual risk protection from the point of inception and no premium adjustments.
  • The premium for transferring the risks from the Scheme to Rothesay Life was converted into a portfolio of assets that the Trustees held already, giving trustee and employer absolute certainty regarding the economics of the transaction.

BACKGROUND AND THE TRANSACTION

  • The Trustees and Asda approached the market together in early 2019, looking to fully insure the Scheme with a bulk annuity. A large shortfall was expected, which would require a cash contribution from Asda into the Scheme to facilitate the transaction.
  • The legal and actuarial advisers for the Trustees and Company worked closely together throughout the process to ensure the transaction met all parties’ requirements.
  • Despite the shortfall, this joined-up approach meant that Rothesay Life knew all parties were serious about the transaction and that the governance to make decisions was already in place.
  • The premium was locked to a portfolio of assets already held by the Scheme. This provided the Trustee and Company with certainty on the cash contribution that would be required to meet the shortfall, and the Trustee was able to meet the premium by simply transferring the specified assets and cash to Rothesay Life.
  • The premium was paid in full up front, with no premium adjustment to be paid following the post-inception data cleanse activities. The contract also provides comprehensive cover for residual risks from the point of inception. This was possible following the Trustee’s own data and benefit audit conducted prior to coming to market, along with Rothesay Life’s due diligence on the Scheme’s legal documentation and administration during the execution process.
  • The Scheme had a proportion of illiquid assets which could be liquidated more cost effectively over time rather than prior to transacting. We worked closely with the Trustee and Company’s advisors to formulate a solution that would allow the scheme to enter into a bulk annuity without being forced to sell their illiquid assets at a discount.
  • The transaction was completed in mid-October 2019, amidst the uncertainties of a Brexit deadline and a possible general election looming.
  • We have worked closely with the in-house pensions team at Asda through the execution and implementation of the bulk annuity, in order to ensure a smooth transition to insurance and on to full wind-up of the Scheme.

CONCLUSION

  • Rothesay Life offered a comprehensive proposal to remove economic and benefit risk from the Trustee and Company early on in the process.
  • This, together with our ability to work collaboratively with the various advisors on both the Trustee and Company side, enabled us to mitigate execution risk during a period of potentially volatile markets and made us an attractive partner for the Trustee and Company.

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