In May 2018, the Trustee of the Littlewoods Pensions Scheme completed a pensioner buy-in of £880m with Scottish Widows. Here we ask John Ashworth, Trustee of the scheme, about the experience.
Tell us about what the Trustee did and why?
The Trustee’s strategic objective has long been to reach buy-out and we have planned our investment strategy with this in mind. As our funding position improved, it became clear that a pensioner buy-in would help us on our journey and establish relationships with insurers that would be important ahead of buy-out.
Did you feel that the way you ran your process influenced the engagement and pricing you received from insurers? If so, can you describe what you did that gave you an edge?
The pricing for our buy-in exceeded our expectations and insurers have told us the way we approached the market really helped with this. We presented ourselves clearly and straightforwardly to insurers, with a focus on the strong governance process we put in place to allow us to move quickly if the pricing was competitive. Together with well-defined objectives, this gave the strong message to the insurers that we were serious about a transaction if the commercial proposals were compelling.
What was your biggest learning point from the buy-in process or about the insurance market?
What struck me throughout the process were the operational constraints the insurers face in terms of pricing and quoting on each transaction presented to them. Whilst we were able to secure the interest of eight insurers in our process, I think that trustees should be prepared for a smaller number of insurers to participate when the market is busy. The key is to make sure these insurers are actively engaged by maintaining a close dialogue, running a fair process and following through if the insurer comes up with a proposal that meets or exceeds your transaction objectives.
Any tips for others considering a buy-in? Are there any traps that schemes could fall into?
My biggest tip is to focus on upfront preparation and concentrate on building relationships with the insurers ahead of approaching the market. LCP encouraged us to do this, both directly and alongside the LCP team. This will help the insurers to understand your strategy and objectives, and will position your scheme in the best possible light.
In terms of traps, the main one is not having a governance structure that allows you to move quickly or agreeing objectives with all key stakeholders up-front. If the insurers don’t have confidence in this, then your transaction will slip down the list when the insurers are allocating their best pricing.
Have you thought about when you might next use insurance? Can you give a flavour of the actions you are taking now?
We have been closing the gap towards our long-term objective of full buy-out and are concentrating on preparing for that transaction in each of the areas important to insurers. For example, we have reorganised some of our assets to ensure they are sufficiently liquid and are carrying out data cleansing of material items, including how to manage GMPs ahead of buy-out. We will complete these activities this year and are looking to target a full buy-out transaction in 2020.
How we can help
We are market leaders at each stage of de-risking, including planning, investment strategy, transactional services and wind up.
We support trustees and employers through the complex process of winding up a scheme.
We help companies manage and mitigate their pensions risks and costs.
We help pension scheme trustees and sponsors to determine the ultimate destination for their scheme and help them put together a plan to get there, including how to effectively manage the risks they face along the way.
We help you identify and implement strategies that will help you achieve your objectives
Are we at the tipping point?
Pensions de-risking report
With the market at a tipping point, the key question is whether pension plan demand could outstrip the available insurance capacity for the first time in 2019.Download the 2019 report