Pensions Insurance Corporation (PIC) has invested in £70m of Consumer Prices Index (CPI) linked secured debt issued by the Church of England Pensions Board (CEPB).
The bulk annuity provider is the sole investor in the high-grade bonds which give the board long-term finance to fund retirement housing for its clergymen.
The bonds were issued through a special purpose vehicle and are repayable in tranches between 2038 and 2048. A total £100m in bonds were issued but £30m was retained to provide quick access to the capital markets if required in future.
PIC would consider buying the other bonds when they are ready to be sold, its head of debt origination Allen Twyning told PP.
CEPB chairman, Jonathan Spencer said in a statement: "We decided the time was right to look at long-term capital finance to help secure the future of the retirement housing (CHARM) scheme. This is the next step on our journey to build a portfolio of properties that will continue to meet future expected clergy demand."
There was a competitive bidding process for the bonds but PIC was able to offer the full amount the board needed.
Twyning said the cashflows generated by the CPI coupon match well with PIC's liabilities with and that the transaction works well for both parties.
He said going through the documentation had been a long process, but the transaction worked well for both parties. He added that PIC was "very keen" to look at these kinds of issuance, although he did point out this was "quite a unique" case.
"As banks have stacked away from the long-dated funding, non-standard issuance is coming into the market, which is what we're looking to get involved in," he said.
He said other pension schemes could consider investing in this way, although he noted it would probably only work for the very large funds: "It's a lot of work, not only understanding the investment but the documentation that comes with it, the valuation approach, and how you apply internal rating to the asset. It's about having sufficient scale and expertise to be able to do that. Other schemes with sufficient scale and expertise could do it, [but it's] not the case for every fund."
While most debt is still linked to the Retail Prices Index (RPI), an increasing amount of scheme liabilities are CPI-linked.
Greater London Authority raised £200m through the UK's first CPI-linked bond in May to help finance the building of a tube link in the city.
The High Court confirmed last year that schemes could use the inflation measure for increasing deferred pensions and pensions in payment.
The transaction between PIC and the CEPB was arranged by TradeRisks.
Just Group has completed a £74m pensioner buy-in with the UK pension scheme of a US-listed engineering business.
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...