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28 February 2018

LCP advises on £450m full buy-in for the Post Office workers pension scheme

LCP has acted as lead adviser to the Trustee of the Royal Mail Pension Plan regarding a £450m bulk annuity with Rothesay Life which insures the benefits payable by the Post Office Limited Section of the Royal Mail Pension Plan.

Among the highlights of the transaction are:

  • The transaction covers the benefits accrued after 2012 for approximately 5,700 scheme members. The benefits that were accrued up to 2012 are paid by the UK government.
  • The benefits are largely for members who have not yet retired, with a significant proportion linked to the Consumer Prices Index (CPI) both before and after retirement.
  • Early interest in this transaction was secured from insurers in 2016 which provided time for them to source appropriate assets.
  • Rothesay Life locked the pricing of the insurance premium to a portfolio of gilts giving price certainty during execution and ease of premium payment once executed.
  • The Trustee also carried out a thorough independent legal review of the benefits in order to prepare for swift implementation of a bulk annuity with residual data risk cover.

Charlie Finch, partner at LCP and lead adviser to the Trustee, said: “Insurers were engaged early in the process, which meant the Trustee was well prepared and could move quickly to take advantage of an attractive pricing opportunity when it arrived. This is a good example of a Trustee, with sponsor support, acting decisively to remove pension liability risk in the Post Office Limited Section.”

Joanna Matthews, Independent Chair of the Royal Mail Pension Plan, said: “This is an important step in improving the security of Post Office workers’ pension benefits. We carefully considered the available options before running a process to select Rothesay Life and implement a bulk annuity transaction. It is through the collaboration of all parties that we were able to lock into this opportunity quickly and achieve an excellent outcome for the Post Office Limited Section.”

Guy Freeman, Co-Head of Business Development at Rothesay Life, said: “We are delighted that Rothesay Life is insuring the pension benefits of the Post Office workers following a well-run process. This comprehensive transaction illustrates Rothesay Life’s strength in removing the complex, long-dated risks associated with deferred pensioners. Corporate appetite to remove pension liabilities has been growing over the past couple of years and shows signs of accelerating in 2018.”