KEY FACTS

  • At £4.7billion this is the largest pension fund (as of September 2019) to secure a buy-out
  • The benefits of c.39,000 members of the G.E.C. 1972 Pension Plan were secured with a bulk annuity, providing increased certainty and security of members benefits.
  • 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 subset of the Schemes assets, giving trustee and employer absolute certainty regarding the economics of the transaction.

BACKGROUND AND THE TRANSACTION

  • The Telent business was the residual component of GEC and embedded within company was a disproportionately large pension fund. Given the asymmetry between the size of the sponsor relative to the size of the pension scheme, the Trustee of the fund decided to de-risk the assets, hedge rates and inflation and slowly try to improve the funding level of the Scheme.
  • 10+ years later the Fund was within touching distance of securing all members benefits in the Pension Risk Transfer market.
  • Having completed initial feasibility analysis the Trustee came to market with a clear set of objectives as to what was required for the buy-out to take place. This direct articulation allowed us to focus our resources on creating tailored solutions meeting the needs of the Plan.
  • The Trustee was able to meet the premium by transferring Plan assets and derivative positions that were already held to Rothesay Life. Rothesay Life locked its price to this portfolio and held this lock during extremely volatile markets (Brexit, US/China trade war, changes to RPI gilts), in parallel the scheme started to move its asset allocation into a more insurer friendly portfolio.
  • Rothesay offered the Trustee an insurance contract in exchange for a subset of the schemes pre-existing asset portfolio. In this manner (no premium adjustment) Rothesay Life, underwrote the additional costs and risks associated with the data cleanse period. This meant we were able to offer Trustee an up-front single premium that covered residual risks.
  • The Trustee carried out extensive due diligence on its historical documentation and administration before coming to market. This allowed Rothesay Life to accelerate its own due diligence process.
  • Rothesay Life worked closely with the Plan’s administration team throughout the quotation and execution phases, to ensure a seamless transition to insurance. The teams continue to work together on the next phase of the journey to buyout and eventually, wind-up of the Plan.

THE CONCLUSION

  • By linking the insurance premium to Plan assets during the execution process and by offering a single premium structure Rothesay Life provided the price and execution certainty that enabled the Trustee to be sure that the Plan could afford and successfully deliver long-term benefit security for the members
  • Our ability to offer price certainty, and mitigate execution risk during potentially volatile markets made us an attractive partner for the Trustee

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