UK recruitment company Hays has completed a £370m insurance buy-in with the Pension Insurance Corporation (PIC), covering 853 pensioners and dependents, and 3,368 deferred members.
Building on the purchase of a bulk annuity policy with Canada Life for a premium of £270.6m on 6 August 2018, the new PIC policy fully insures the scheme’s remaining benefit obligations.
The company supported the transaction with a c.£13m upfront cash contribution, it was announced.
The last formal actuarial valuation for Hays Pension Scheme, which closed to future accrual from 30 June 2012, was performed at 30 June 2021 and quantified the scheme deficit on a buyout basis at £192.1m.
A deficit funding schedule, in line with the group’s strategy to achieve an eventual buyout of the scheme, was agreed with effect from 1 July 2021 which maintained the annual contribution at its previous level, subject to a 3% per annum fixed uplift over a period of five and a half years.
The amount of deficit funding contributions related to the Hays Pension Scheme expected to be paid in the year to 30 June 2025 was £18.2m.
As a result of the buy-in, all financial and demographic risks relating to the scheme’s liabilities are now fully insured, with the two policies paying a regular stream of income that matches its pension payments to all members.
This buy-in is the “final and most significant step” towards Hays fully insuring its UK pension obligations and, subject to customary post-transaction data reconciliations and adjustments, will provide the group and the trustee the option to proceed to a full buyout and winding-up of the scheme.
LCP acted as lead transaction adviser. The scheme received legal advice from Hogan Lovells International, actuarial advice from Hymans Robertson and investment advice from Mercer. The company received legal advice from Slaughter and May. PIC received legal advice from Addleshaw Goddard.
Sean Burnard, director at The Law Debenture Pension Trustee Corporation and chair of trustees of the Hays Pension Scheme, said: “The buy-in transaction has helped us meet our objective of securing the pensions of all members of the scheme.
“We are delighted to have partnered with PIC who were selected on their strong track record and excellent customer service. Being well prepared with good project management means we have secured good contractual terms with attractive pricing for our members.”
James Hilton, Hays chief financial officer, added that from a Hays perspective, the transaction eliminates pension-related balance sheet volatility and is expected to have a materially positive impact on group free cash flow from FY26.
He said: “Our structurally improved cash generation will support investment in growth and the return of excess capital to shareholders in the medium term.”
Deepash Amin, head of new business strategy at PIC, said: “Being well prepared and having a clear set of objectives allowed us to deliver a tailored solution [to] the scheme. It was a pleasure working with the scheme and their advisors, who ran a smooth and efficient process.”
Read the digital edition of IPE’s latest magazine
No comments yet