The Safeway Pension Scheme, which has UK supermarket giant Wm Morrison Supermarkets as sponsor, has completed a £1.4bn (€1.6bn) buy-in transaction with pensions insurer Rothesay.
The transaction secures the benefits for all remaining uninsured members of the scheme – defined benefit (DB) liabilities for 7,200 pensioners and dependants, and a further 15,300 deferred members, it was announced.
The buy-in, which required no contribution from Morrisons, was achieved through an accelerated process supported by the scheme’s readiness as it came to market, helping the trustee and company lock in security for members quickly when the opportunity arose, Rothesay stated.
Working with Rothesay for the second time in short succession meant all parties involved were able to utilise the working relationship they had built up to deliver a seamless execution, establishing a Joint Working Group to expedite decision-making.
Rothesay has now insured over £2.1bn of the company’s pension liabilities. The lead broker on the transaction was Aon, acting on behalf of both the trustee and company. Legal advice was provided to the trustee by Clifford Chance and to Rothesay by DLA.
Steve Southern, a professional trustee from Vidett and the scheme’s chair of trustees, said: “This represents an important part of our plan to guarantee that security for all the members we are responsible for as trustee. Working with Rothesay, Aon and Morrisons for the second time in a short timeframe allowed us to act quickly and decisively to achieve our de-risking goals.”
John Baines, partner at Aon, added: “Most of the recent commentary on the bulk annuity markets has focused on how busy 2023 is likely to be. This transaction demonstrates that value is still available for well-prepared schemes, with the Joint Working Group benefiting from their experience of four previous buy-ins on this scheme alone.”
Ibstock Pension Scheme’s £190m buy-in with Just Group
The Ibstock Pension Scheme has also announced a £190m buy-in deal with Just Group this morning. This builds on an existing £340m buy-in policy secured in 2020 which covered the majority of the scheme’s pensioner members and means that benefits in respect of all scheme members are insured by Just Group.
This second buy-in transaction was made possible by the rise in Gilt yields and very attractive pricing in the second half of 2022, whilst the existing relationship meant both Just Group and the scheme’s trustees, with the full support of the sponsor, were able to move quickly to lock in terms, LCP, the adviser to the trustees, stated.
Of particular interest were the innovative solutions that Just Group, the trustees and the sponsor were able to agree for aligning the timings for premium payment to be synchronise with the timing of the trustees being able to realise the scheme’s assets, with a minority of its investments being either illiquid or subject to long notice periods, it added.
The trustees were also advised by Buck and Addleshaw Goddard.
Rachel Tranter of BESTrustees, chair of trustees of the Ibstock Pension Scheme, said: “This was a massive team effort from the trustees, the sponsor, all the advisers and Just [Group] to be able to transact over a very short timeframe with all parties working very effectively together to come up with a workable solution for some of the illiquid assets.”
Market volatility pushes buy-in/buyout volumes
Total pension scheme buy-in and buy-out volumes reached £15.8bn in the second half of 2022, according to Hymans Robertson’s Half Year Risk Transfer Report for H2 2022.
The analysis found the unparalleled market volatility over that time resulted in an extremely busy second half of the year with the number of transactions at their highest volume for nearly 10 years.
In total £15.8bn of buy-ins and buyouts took place across over 124 transactions during H2 2022 with an average transaction size of £127m, Hymans’ report disclosed.
Approximately 80% of that volume was in relation to buy-ins and the remaining 20% related to buyouts. In 2022, 202 transactions took place valued at around £27.7bn.
James Mullins, head of risk transfer at Hymans Robertson, said: “As 2022 reached its halfway point, the risk transfer market remained resilient, despite concerns about rising inflation and economic uncertainty concluding with a turbulent political landscape in early Autumn. Large yield rises triggered a feedback loop of defined benefit pension schemes selling Gilts to deleverage or potentially scale back hedging. As the dust settled after the market volatility, schemes reassessed their endgame journey plans.”
He added that market volatility led to widening of credit spreads, resulting in excellent pricing opportunities for some pension schemes already in the market during Q4 2022.
He expects the risk transfer market to be “extremely busy” in 2023 and beyond.
Two in five pension schemes target buyout as endgame solution
Similarly, recent research by Janus Henderson and mallowstreet showed that over two in five UK pension schemes are targeting an insurance buyout as their endgame solution, up from just over a third (35%) a year ago.
For schemes under £1bn, this figure rises to over half (56%), illustrating how risk transfer is the preferred solution to managing complexity for UK pension schemes.
The two firms surveyed more than 160 trustees and pensions professionals, a third of whom were chairs of trustees, to understand the major risks and concerns facing trustees in 2023.
Now in its second year – Trustee Report 2022 – the study canvasses the views of a representative sample of pension schemes to analyse the latest regulatory challenges, as well as key areas where the pensions industry can better support trustees.
The report findings come despite the fact the new pensions DB funding code will make low dependency strategies the default long-term funding goal for DB schemes.
The report also finds that 79% of schemes are over 90% funded, irrespective of whether their endgame is buyout or low dependency. More importantly, buy-outs are becoming increasingly popular among schemes with weaker sponsors, which shows the significant role they play in responding to regulatory pressures.
Anil Shenoy, head of UK institutional at Janus Henderson, said: “The insurance buyout is becoming more popular as an endgame strategy and this trend is likely to continue following the improvement seen in many schemes’ funding positions over recent months. However, the repricing of liquid corporate bond markets means more opportunities to construct a low dependency portfolio which can be useful if schemes need time to get ‘buyout ready’ or if there are capacity constraints in the insurance market.”
Increased regulatory complexity, greater legal responsibilities and a lack of clarity around the ESG impact on risk/return profiles are additional key challenges pensions professionals see facing the industry this year.
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