Legal & General (L&G) has secured a £2.5 billion partial buy-out of the TRW Pension Scheme as part of a “ground-breaking” risk transfer project, claimed to be one of the largest and most complex completed in the UK to date.
As well as the pensioner buy-out, TRW—a US-headquartered car parts manufacturer—used pension increase exchange offers, enhanced transfer values, and winding-up lump sums to reduce the risks connected to deferred members.
Mercer, which acted as the lead adviser to the TRW trustees, claimed the project was the “largest and most complex” de-risking deal so far completed in the UK. In total, two thirds of the pension fund’s liabilities—and some 30,000 members—were covered by the project.
TRW also co-ordinated the UK de-risking exercise with other arrangements covering its smaller US and Canadian pensions. Adrian Hartshorn, senior partner at Mercer, said these plans combined annuities and the payment of lump sums to reduce their liabilities in a cost-efficient manner.
Neil Marchuk, chair of TRW’s UK trustee board, said the buy-out “materially de-risks our remaining pension obligations and provides security to members”.
Ronnie Bowie, actuary and partner at Hymans Robertson—which provided actuarial and investment consultancy services to TRW—hailed the completion of the deal as “innovative” and “ground-breaking”.
The UK move follows a liability-driven investment (LDI) strategy implemented by TRW in 2007 with L&G Investment Management.
TRW locked in a price agreement with L&G early on in the process, according to Mercer, which “provided certainty for all parties” and allowed the pension fund to focus on transitioning its assets from an LDI model to a portfolio suitable to be transferred to the insurer.
L&G has been particularly active in the de-risking market this year. It was one of two insurers, along with Prudential, to take on £3.6 billion in liabilities from chemical company AkzoNobel’s ICI Pension Fund.
In total, more than £8.5 billion in assets and liabilities has been transferred to insurers and other third parties in the UK in 2014.