UK insurance firm Rothesay Life set two pension risk transfer deal records in as many days days. The firm signed the UK’s largest-ever pension transfer deal with telecoms firm Telent covering £4.7 billion pounds ($5.8 billion), and then signed the largest buy-in ever to cover deferred and current pensioners to insure £3.8 billion of defined benefit liabilities for the Allied Domecq Pension Fund.
The deal with Telent secures future payments to 39,000 members of its defined benefit pension plan, which is known as the GEC 1972 Plan. The companies said the deal will enhance security for members while protecting their existing terms and benefits. The transaction is in two parts, with the buy-out expected to be completed before the end of 2022, and will be the largest buy-out ever undertaken in the UK, according to the companies.
Telent said the transfer deal has been a goal of the company for several years, and was possible because of the improved funding of the plan. The buy-in will see the transfer of the assets of the current plan to Rothesay Life in return for an insurance policy that will provide the funds for the plan’s current administrator to continue paying members’ benefits in full.
“Over five years ago the trustee decided that the best way to provide maximum security for our members in the long term would be to achieve buy-out,” Brian Duffin, chairman of the trustee board, said in a statement. “We believe our members will receive good service from Rothesay Life in future as well as optimal security in the payment of their benefit entitlements.”
For the buy-out phase pensioners will receive individual pension contracts or annuities with Rothesay Life, who will then take responsibility for paying members’ benefits. All of the current terms and benefits, including annual increases and the flexibility for things like allowing members to take early retirement or take cash lump sums, will be replicated for all members.
Meanwhile, the Allied Domecq Pension Fund deal covers more than 27,000 members, of which approximately 17,000 are pensioners and 10,000 are deferred pensioners.
“This transaction is further evidence that large maturing pension schemes are increasingly looking to secure de-risking opportunities,” Sammy Cooper-Smith, head of business development at Rothesay Life, said in a statement. “
The fund will continue to hold some residual assets to support ongoing running costs as well as the payment of any pension benefits that are not covered by the policy. In anticipation of the transaction Rothesay Life’s shareholders contributed another £200 million of new equity in addition to the £500 million announced in September.
Rothesay Life’s assets now exceed £50 billion, which is more than twice what it was at yearend 2017 when it had £24 billion in assets.