The British American Tobacco (BAT) UK Pension Fund has completed a £3.4bn buy-in with Pension Insurance Corporation (PIC), the largest buy-in transaction including pensioner and deferred members.
The agreement is the third biggest insurance-based risk reduction transaction in the UK after Legal and General's £4.6bn buyout of Rolls-Royce UK Pension Fund in June, and the Airways Pension Scheme's buy-in with £4.4bn in September last year (see our list of the biggest buy-ins and buyouts announced since 2007 here).
The deal secures the benefits of 10,600 members, including 8,300 pensioners and 2,300 non-pensioners. The BAT scheme has total liabilities of £4bn, including a residual section open to ongoing accrual.
BAT UK Pension Fund trustee chairman Brian Barrow said the transaction is a "significant step" towards the trustee's objective of reducing risk and increasing the security of members' benefits.
He said: "We are delighted that we have been able to complete a transaction of this scale successfully, despite the recent market volatility.
"PIC has been flexible and innovative throughout and I want to thank them and our advisers for helping us achieve our de-risking goals."
The scheme trustees were advised by Lane Clark & Peacock (LCP), who acted as transaction adviser and advised the trustees on strategic journey planning, transaction structuring and negotiated and executed the transaction.
LCP worked together with Linklaters, which provided legal advice to the scheme, and Mercer, which advised the sponsor on the scheme's overall pension de-risking strategy. PIC was advised by Herbert Smith Freehills.
PIC head of business development Mitul Magudia said: "Insuring both pensioner and deferred members introduces more complexity to an insurance transaction, when compared to similarly-large pensioner buy-ins and requires careful consideration of areas including, residual risks, asset strategy and reinsurance.
"This transaction continues to advance the development of innovative structures in the de-risking market and we are really pleased to have been able to help the trustee secure its members' benefits following their excellent stewardship."
LCP head of trustee consulting Michelle Wright added that the transaction was an "important milestone for the market".
She explained: "The BAT fund exemplifies the growing trend of large schemes accelerating their de-risking plans due to attractive pricing and improved affordability."
Wright added that the competitive pricing negotiated with PIC allowed the fund to maximise the amount insured.
"Having now insured three-quarters of its liabilities, the fund has successfully achieved another important step in reducing risk and increasing the security of members' benefits."
Mercer partner David Ellis added: "This major transaction is testament to what can be achieved through a proactive, well-planned and confident approach to managing pension risk. Mercer is proud to have partnered with BAT on its journey to reduce its exposure to risk from its defined benefit pension obligations."
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