Credit: Stagecoach
Aberdeen Group has agreed to replace Stagecoach as sponsoring employer of the £1.2bn Stagecoach Group Pension Scheme.
The agreement follows an extensive process of considering endgame options for the scheme, where LCP advised Stagecoach on its options and the commercial aspects of this transaction.
Under the arrangement the scheme, which has a strong surplus position, will continue to run-on and Aberdeen will take on responsibility for the scheme's funding as well as the management of the scheme's assets.
The arrangement is expected to bring significant benefits to the scheme's 22,000 members. It has been designed to seek to ensure long-term security for the scheme, with robust guardrails that protect the scheme's financial security. Members will also benefit from an initial uplift to all benefits and better inflation protection.
Furthermore, the arrangement will also offer the prospect of further pension increases for scheme members in the future, generated by Aberdeen investing in productive assets, with Aberdeen receiving a minority share of any surplus generated.
This innovative transaction supports the Stagecoach Group's objective of simplifying its business through settling its arrangements with the scheme and ensures the interests of pension scheme members and Aberdeen are closely aligned.
Through the deal, Stagecoach Group Pension Scheme members will benefit from an additional initial uplift of 1.5% to pensions, and the potential for further increases linked to the financial performance f the scheme.
It follows Aberdeen's decision earlier this year to run on its own £2.6bn defined benefit (DB) pension scheme, with surplus unlocked for both the benefit of Aberdeen and the scheme's members.
PwC was lead adviser to the scheme trustee during the process, while Hymans Robertson led the strategic and investment due diligence on behalf of the trustees.
Stagecoach Group Pension Scheme trustee chair John Hamilton said: "Our objective was to consider what would provide the best pension outcomes for the scheme members.
"With a significant starting surplus in the scheme built up over many years and prospects for further sustained growth in the fund, our goal was to run-on the pension scheme to provide better inflation protection and higher pensions for our members using the scheme assets under secure funding arrangements.
"The trustee had a natural meeting of minds with the team at Aberdeen. Their experience of achieving similar outcomes for their own scheme, a belief in the need for growth and productive assets, and the recognised strength of Aberdeen's pensions and investment teams, all meant we were able to develop an innovative solution to deliver improved pension outcomes for our members."
Aberdeen Group chief executive Jason Windsor added: "This is a landmark agreement that will deliver significant value to Stagecoach's scheme members, and to Aberdeen.
"The scheme's strong funding position allows Aberdeen to take on the responsibility for managing the fund and provides the opportunity to enhance member benefits by investing in productive assets.
"The agreement, which aligns with the UK's goal of making pension capital work harder for the economy, brings £1.2bn in new assets under management and opens up new investment opportunities.
"We believe in the run-on model for well-funded schemes, having already taken this approach for our own scheme."
Stagecoach Group chief financial officer Bruce Dingwall commented: "We have been pleased to support the trustee in assessing the best option for the scheme, having reached a strong funding position. We are delighted that these arrangements allow members to benefit from a strong sponsor and an expectation of further benefit improvements over time. For Stagecoach, this transaction gives us a clean break from the large DB pension scheme, which supports our objective of simplifying our business."
‘Innovative' solution
LCP partner and lead adviser to Stagecoach Steve Hodder said: "We are delighted to have helped Stagecoach reach their pensions destination, with an innovative solution that is expected to deliver a meaningful boost for 22,000 members. This example highlights a continuing trend of well-funded DB schemes being viewed as ‘an asset' for their members and sponsor, in the right circumstances."
LCP partner and head of corporate consulting Gordon Watchorn added: "This is an excellent and innovative solution given the specific combination of circumstances of this scheme. At a time of considerable change for DB pensions, this case reinforces the value of bespoke and innovative advice to ensure our clients reach the best outcome given their objectives."
PwC lead transaction adviser Iain Pearce noted: "This transaction is a great outcome for members, who are expected to receive material improvements over time, within a very low risk framework. We're delighted to have led the advice, setting out the full range of options, agree a preferred outcome and then executing this innovative transaction. It has been a pleasure to work with the various stakeholders and other advisors involved at pace to deliver this trustee-led innovative transaction to support positive member outcomes."
Hymans Robertson head of pension policy innovation Calum Cooper said: "It's been a privilege for Hymans to lead the strategic and investment due diligence on this DB pensions 'first' on behalf of the trustees. When it comes to surplus sharing, this deal asks the question: do members care more about what they can buy with their pension, or the actual amount of their pension.
"Ultimately, this trustee led transaction found a way to put surplus to work with productive investments that meaningfully improve member outcomes today, and with the expectation of providing further improvements via surplus sharing in the future. This DB innovation first offers protection against what members can buy with their pensions. Given the pensions policy, fiscal and political landscape, it will not be the last."
Hymans partner and lead investment adviser Simon Jones added: "This is a great outcome for the scheme members who are expected to see benefit improvements as a consequence of being able to agree a longer-term investment strategy that will invest in productive assets. This demonstrates the ongoing potential of DB pensions."
