As part of our series looking at what firms did to win accolades at the UK Pensions Awards 2016, PP speaks to LCP partners Charlie Finch, Michelle Wright and Clive Wellsteed about how the firm won the Risk Reduction Adviser of the Year category.
Video: LCP partners Charlie Finch, Michelle Wright and Clive Wellsteed
Interview: LCP partner Clive Wellsteed
PP: What does it mean to win this award?
CW: We are extremely proud to have won the PP Risk Reduction Adviser award for the third consecutive year, reflecting our focus on delivering first-class advice to our clients in this specialist area.
As de-risking becomes more central to many schemes’ strategies, we have helped clients to identify the right de-risking opportunities and then implemented them on attractive terms. It is very rewarding to see our work in both these areas recognised by the award.
For schemes choosing to de-risk using insurance, the judges recognised that LCP was lead adviser on nearly 50% of all buy-ins and buy-outs over £100m for the year in question. Last year we advised the Trustee of the Philips Pension Fund on their final £2.4bn transaction completing their ultimate goal of a £3.5bn full buy-out – the largest ever in the UK.
We are equally proud of the work we have been doing with smaller schemes. Earlier this year, our streamlined buy-in and buy-out service reached the £500m landmark, helping smaller schemes access pricing and terms that they could not otherwise achieve.
PP: What do you believe sets you apart from your peers and contributes to this success?
CW: Clients tell us that LCP has three key differentiators. Firstly, our leading-edge technology such as the new LCP LifeAnalytics platform helps schemes to measure longevity risk and identify when and how to transfer longevity risk compared to other de-risking opportunities.
Secondly, we provide independent unbiased advice – we don’t have products to sell or alliances with insurers or other providers. We simply give the most appropriate advice to satisfy each client’s de-risking objectives.
Thirdly, for insurance transactions, we have a deep and well-resourced team of partners and consultants, all experienced in the area. We pride ourselves on giving clear advice, which helps our clients to be decisive and efficient in achieving their aims.
PP: What are the key challenges facing your pension scheme clients and how are you helping them address these issues?
CW: As schemes mature and reduce risk, longevity risk becomes more dominant and schemes need to assess when and how to transfer longevity risk alongside other de-risking opportunities. To help them do this we have developed LCP Life Analytics.
LifeAnalytics models longevity risk at an individual member level allowing schemes to measure longevity risk robustly and reflecting their own scheme’s membership. We have then integrated LifeAnalytics into LCP Visualise, our online real time valuation system, to help schemes analyse whether reducing investment risk, longevity risk (or both) offers the most risk reduction for a given spend.
We can also help answer questions such as whether a scheme’s risk from its larger pensioners justifies completing a “top-sliced” buy-in at current market pricing and so on.
PP: How will you continue to improve your services to pension scheme clients over the coming 12 months?
CW: A key focus for us is helping schemes to implement de-risking decisions quickly as opportunities arise, particularly for insurance solutions which traditionally have longer lead-in times.
A well designed governance is key to moving quickly to seize the best pricing as it becomes available through careful preparation, governance and understanding of the market. For example we have helped the ICI Fund successfully implement a record seven buy-ins transferring nearly £6bn of longevity risk through a streamlined governance and execution process.
Extract from LCP's original UKPA submission
Clients state that LCP has established itself as the “go-to” adviser when it comes to buy-ins and buy-outs – something that is demonstrated by the fact it was appointed as lead adviser on 8 of the 17 buy-ins and buy-outs over £100m in the year to 31 October 2015.
Highlights of LCP's year include working with the ICI Pension Fund to de-risk a record £5.4bn through six tactical buy-ins – four of which were completed during the year – and helping the trustee of the Philips Pension Fund successfully negotiate with Philips to achieve a £3.5bn buy-out providing full benefits.
LCP also helped smaller pension schemes transact successfully – surpassing £500m of transactions through its streamlined buy-in and buy-out service, which now offers a full end-to-end service.
In addition to this LCP has innovated significantly – launching its new platform, LCP LifeAnalytics. This helps LCP's clients measure longevity risk far more robustly, and in a way that reflects their own scheme's membership – allowing longevity risk to be broken down by type of risk, membership subset and time horizon.
LCP LifeAnalytics is a significant improvement to existing approaches that focus on investment risks only or use crude proxies for longevity risk – and can help clients decide how to prioritise their resources for their next de-risking step, be that a buy-in, longevity swap or further hedging. It can also help provide a robust answer to questions such as whether a scheme’s risk from its larger pensioners justifies completing a 'top-sliced' buy-in.
During the year, LCP also became the first advisor to help clients execute buy-ins using a new type of 'umbrella' contract architecture, designed to allow schemes to execute quickly whilst benefiting from the strong terms already applying to the existing buy-in contracts.
The UK Pensions Awards 2016 Winners’ Series
- How Hymans Robertson won the Actuarial / Pensions Consultancy of the Year award
- How Capita Employee Benefits won the Employee Benefits Consultancy of the Year award
- How LCP won the DC Consultancy of the Year award
- How Hymans Robertson won the Investment Consultancy of the Year award
- How Travers Smith won the Pension Lawyers of the Year award
- How LCP won the Risk Reduction Adviser of the Year award
- How B&CE won the DC Pension Provider of the Year award
- How The People’s Pension won the DC Master Trust of the Year award
- How Hymans Robertson won the Third-Party Administrator of the Year award
- How LCP won the DC Innovation of the Year award
- How Hymans Robertson won the DC Investment Innovation of the Year award
- How Capita Employee Benefits won the Communication Innovation of the Year award
The Smiths Industries Pension Scheme has secured a £146m buy-in with Canada Life in its fourth bulk annuity and its sponsor’s tenth overall.
The Prudential Staff Pension Scheme has entered into a £3.7bn longevity swap with Pacific Life Re, insuring the longevity risk of over 20,000 pensioners.
The Baker Hughes (UK) Pension Plan has secured approximately £100m of liabilities through a buy-in with Just Group.
There have now been a total of 30 longevity swaps over £1bn publicly announced. The full list, provided by Willis Towers Watson and through PP research, is as follows...
The Reckitt Benckiser Pension Fund has secured a £415m buy-in with Scottish Widows, insuring the benefits of around half of pensioners.