The largest buy-in
of 2017

Case studies

The Pearson Pension Plan completed the largest buy-in of 2017 at £1.2bn, split between Aviva and Legal & General.

October 2017

The background

The pension plan is strongly funded following cash received as part of these disposals together with good investment performance. Since 2012 Pearson has sold a number of businesses including Penguin books, the Financial Times Group and the Economist. The Pearson Pension Plan has c. £4bn of assets and a FTSE 100 sponsor.

The Trustee and Pearson took steps to reduce investment risk and identified longevity risk as a key priority. Following a competitive tender process, LCP was appointed to a joint working party to advise on longevity risk management.

Our solution

The decision to buy-in

The Trustee’s and Pearson’s objective to progressively reduce longevity risk in tandem with investment risk made a phased buy-in strategy natural for them.

Careful analysis of the capacity for a buy-in and the funding impact was conducted before deciding to proceed.

Ring fencing the assets

Both arrangements include additional security provisions where assets are maintained in a ring fenced custody arrangement owned by the Trustee.

These provide additional protections for the Plan and Pearson should either insurer get into financial difficulties or fail to meet their obligations under the policies, which enhances the security of members’ benefits.

Choosing who to insure

The plan analysed a range of membership subsets and sought pricing on targeted options before deciding to pursue two representative cross-sections of the pensioners. A key benefit of this approach was that it avoided any bias in the insured or non-insured populations.

Umbrella contracts

Umbrella contracts were set up as part of both buy-ins to enable them to be extended quickly through the existing contract terms. This ensures the same strong terms are preserved for future de-risking.

The plan is able to extend the de-risking over time as capacity within the investment and funding strategy emerges.

The results

The Plan completed the largest buy-in of 2017 at £1.2bn, split between Aviva and Legal & General.

“LCP helped us to navigate a complex area very effectively. They were highly organised, proactive and consistently demonstrated a strong commercial aptitude. I can say with confidence that LCP exceeded our expectations throughout.”

Stephen Beaven, Pensions Director, The Pearson Pension Plan

£1.2bn of liabilities insured split equally between Aviva and Legal & General, covering around two-thirds of the pensioner liabilities. The buy-ins are held as investments and members will see no change to how their pensions are provided.

Security structures provide additional protection beyond a standard buy-in. Umbrella contract structure allows either buy-in to be quickly and easily extended.

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