This follow-on buy-in provided additional financial certainty

In 2016, Aggregate Industries worked with the trustees of their main DB plan to agree a £135m 'follow-on' buy-in with Just Retirement (part of the JRP Group) which completed in July 2016 shortly after the EU referendum vote.

The background

Aggregate Industries sponsors a c£750m DB pension plan with around half of its liabilities in respect of current pensioners.  

In 2010, we helped Aggregate Industries to complete a dual transaction with Pension Insurance Corporation (PIC): a £210m pensioner buy-in for the main DB plan; and a £100m full buy-out of a legacy DB pension plan.

Since then, we have helped Aggregate Industries to monitor opportunities to de-risk through buy-ins. The 2015 valuation of the pension plan showed that further retirements meant there was now over £100m of uninsured pensioners. In addition, the Company and Trustees were minded to reduce investment risk in the DB plan (in particular the allocation to equities) and this provided capacity within the investment strategy to extend the existing buy-in.

Our solution

• Price monitoring: Since 2010 we had provided monitoring of buy-in pricing – more recently using LCP Visualise’s online buy-in price-tracker.
• Initial approach: In late 2015 we approached PIC for firm pricing to extend the existing buy-in. This was some way off the pricing targets agreed with Aggregate Industries.
• Full market review: It was therefore agreed to undertake a full market review reporting to the plan’s investment committee (made up of trustee and company representatives). LCP was appointed to the trustees to advise them on the buy-in as well as the company.
• Set objectives: We agreed a clear set of objectives, taking account of capacity within the plan’s funding and investment strategies, and agreed pricing targets against which the buy-in would be measured.
• Extracting best pricing and terms: Through a carefully designed selection process involving a combination of pricing targets and competitive tension.
• Timing: The process was designed to conclude shortly after the EU referendum in late June 2016 to capture any beneficial pricing impact from the resulting market volatility. The Leave vote resulted in a sharp improvement in pricing. We ran an accelerated execution process completing in 2 weeks following Just Retirement’s selection for the buy-in, made possible by having agreed key contractual terms ahead of exclusivity.

The results

The approach for the ‘follow-on’ buy-in meant Aggregate Industries were well-placed to take quick advantage of the beneficial buy-in pricing impact in the wake of the Brexit vote.

Indeed, so favourable was the pricing that it was decided to sell down further equities, which had performed strongly in the wake of the Brexit vote,  and extend the buy-in to include further retirements over the 12 months to April 2016, thereby boosting the size of the transaction to £135m.

Our experts discuss Aggregate Industries in our on-demand webinar - watch it here

This follow-on buy-in provides additional financial certainty for Aggregate Industries, the Trustee Board and Plan members. In uncertain economic times Just Retirement was able to offer attractive financial and commercial terms. The successful transaction owes much to the hands-on experience of LCP and our other professional advisers working closely with Just Retirement.