UK - The £1.3bn (€1.7bn) TI Group Pension Scheme (TIGPS), one of the schemes belonging to the engineering firm Smiths Group, has agreed a second £250m (€312m) partial buy-in deal, this time with Paternoster.

The investment represents approximately 20% of the scheme's assets and has resulted in the transfer of £250m of assets to Paternoster, in return for which the buyout firm will make regular payments to the scheme.

Mike Abrams, director, UK pensions, speaking for the scheme, said: "The trustee has chosen to purchase annuities to match a portion of the scheme's liabilities, the aim being to reduce the effect of changing investment and mortality conditions on the scheme's funding position."

The transaction follows the announcement in April this year of a similar £250m annuity purchase by the TI Group Pension Scheme with Legal & General. (See earlier IPE story: ‘TI Group agrees partial buyout with L&G')

Under the terms of the deal with L&G, the pension scheme agreed to insure a portfolio of its pensions in payment, also by transferring approximately £250m of its assets to L&G in exchange for regular annuity payments into the scheme.

Including transactions concluded with other schemes, over £1bn of assets has now been transferred to Paternoster in 2008.

Consultancy firm Watson Wyatt commented on the deal, saying the bulk annuity transaction is the seventh successive deal of £100 million or more that has covered pensioner liabilities only.

The firm warned however that if an insurer were to fail following a buy-in, the scheme would still be responsible for paying benefits and the sponsor could have to make up any shortfall.

Steven Dicker, a senior consultant at Watson Wyatt said even though this is unlikely, the turbulence engulfing the financial services sector last week underlines that the possibility cannot simply be ignored.

"Splitting the business between more than one insurer, as Smiths/TI has done, is one way to reduce this risk, so their decision may not simply reflect the fact that the cheapest insurer will vary according to the time of the transaction or the benefits covered," he added.

Another approach which more directly addresses the risk to a pension scheme following a buy-in is to incorporate additional security provisions in the annuity contract itself.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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