Trustees of an industry-wide charity pension scheme have completed a £70m buy-in with Aviva, which will flip into a full buyout with the insurer over the next 12 months.
The deal covers the non-associated multi-employer (NAME) Federation Flexiplan No. 1 scheme, which includes benefits for employees of over 200 hospice, medical research, housing and education charities. It will eventually insure benefits for around 2,500 total employees.
The scheme had set itself a buy-in target date of 2019 at its most recent valuation on 31 March 2015, but has now approved a transaction two years ahead of schedule.
At that valuation, the scheme had a £5.2m deficit on a buyout basis, but had improved considerably from the £18.3m deficit in 2012.
Professional trustee firm Entrust Pension led the transaction on behalf of the scheme, while KPMG acted as actuarial adviser and monitored the market for attractive pricing. This enabled the scheme to take advantage of an opportunity in the third quarter of last year.
Speaking to PP, Entrust Pension director and co-chair of the NAMES industry lobby group Suresh Bhatt said preparation was vital to completing the deal as quick as possible.
"We reached this amazing target ahead of schedule," he said. "It was teamwork that helped us to get there, with the employers, advisers and a joined-up approach.
"In targeting the buy-in as a figure to reach, that informed a lot of our choices. For example, we were speaking to potential insurers for our scheme in advance to get a feeling of what work we had to do to get it to a position where it would be attractive to insurers. There was a lot of preparation in that.
"The preparation reaped its rewards when it came to the tender process, and we note the advantage of doing that preparation because insurers are keener to transact and therefore keener to be competitive on pricing. That was a major factor to getting us to this target in advance."
The de-risking transaction also has the advantage of eliminating any concern over section 75 debt, where employers could end up picking up the tab where other employers go bust.
Patrick Kennedy, who is also a director at Entrust Pension, added this would provide a wider range of benefits for the charities.
"This has achieved hospices, medical research practices, housing and education charitable entities up and down the country being able to move on past the fear of a last man standing final salary pension scheme coming back to haunt them," he said.
"This has a strong measure of societal good to it, because the people in charge of financing those entities can now just get on with the job."
He added that "robust governance", including a representative group of employers and professional advisers, had enabled the deal to go ahead.
KPMG UK partner and scheme actuary Andrew Goddard said the process had been very efficient.
"This is a great example of how a team led by sole professional trustees and supported by one multi-faceted advisor team can get the job done in the most efficient way," he said.
"The governance and monitoring structure that we put in place meant that we were ready to react to market opportunities and decisions were made quickly when they needed to be. I think any schemes that are serious about going on a buyout journey could benefit from this platform solution approach."
Aviva's bulk purchase annuity practice managing director Nick Johnson said the deal showed the strength of the trustees.
"We're delighted to have been chosen as the bulk purchase annuity provider for the buy-in of this scheme," he said. "This was a complex transaction with many moving parts and challenges to overcome.
"It clearly demonstrates the value of having experienced independent trustees and advisers, a well-designed and executed process and what can be achieved when all parties work closely together to achieve the same goal."
Entrust will continue to run the scheme over the next year while it is transferred to Aviva.
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...