Pension scheme buy-outs – how to do a buy-out in less than two weeks

June 2021

Context

The Marathon Services (G.B.) Limited Pension & Life Assurance Scheme (the “Scheme”) is a well-funded pension scheme. It had an investment strategy that was designed to manage risk and generate returns. The employer-trustee relationship had been in place for many years.

The Challenge

During 2019, there was a change of employer, an actuarial valuation in progress and some changes in the trustee make-up with some new trustees coming on board. Also, an investment change was made to crystalise gains and a buy-out option was considered though it was not clear that pricing would be sufficiently attractive to make it affordable in the short term. Even more challenging was managing the competing requirements of finalising the valuation quickly while trying to execute a complex de-risking, buy-out project.

As there was a lot happening and some of the trustees were still new, the company decided to bring in a professional trustee to help progress the various workstreams, particularly as deadlines were looming and juggling multiple projects simultaneously requires experience and expertise.

Our Approach

ITS was approached by the employer to chair the trustee board as a professional trustee, with the aim of completing the valuation and, if possible, a full buy-out. Chris Martin of ITS was appointed on 17 July 2020, supported by his colleague, Akash Rooprai, who also has deep and wide experience of bulk annuities. By working quickly to get up to speed on the issues to consider and progress to date, ITS was able to:
• Provide strong leadership and mentoring of the trustee board, through Chris’s extensive experience in similar situations.
• Quickly develop a strong working relationship with the employer.
• Work very closely with the trustee and company advisers (various consultants and lawyers), leveraging our strong institutional relationships in the advisory firms to enable the Board to make quick and effective decisions.
• Deal directly, quickly and decisively with the insurer, especially in reaching agreement on the commercial aspects, liaising with the employer as necessary.
• Work with the advisers and company to develop an innovative funding arrangement allowing for the buy-out, with a back-up plan if the buy-out wasn’t possible. The funding arrangement was required to avoid trapped surplus in the Scheme and ensure that funding for expenses up to wind-up completion was available, in the event that the buy-out was possible.

The Outcomes

By working collaboratively with the set of advisers, the employer and the insurer a solution was found that made the buy-out pricing affordable, though the opportunity would only be valid for a limited period.

ITS was able to choreograph the advisers efficiently and effectively to enable the bulk annuity contract for £610 million to be signed on 29 July 2020, less than two weeks after formally being appointed. ITS was also able to reach agreement on the valuation. Throughout the process ITS ensured that the trustee board as whole was clear on the actions, and it understood and agreed all the decisions made.

As a result of these efforts, members’ benefits now enjoy much greater security and the employer will achieve a discharge of its pension obligations at an acceptable cost.

This solution was only possible as ITS is an experienced, professional trustee and had individuals who could get to grips with the issues and help the trustees make decisions in very short order. Our experience in bulk annuities was particularly valuable. Having a collaborative approach with the employer and working as a team with all the advisers involved was also beneficial to this process.

Testimonials

Adolfo Aponte, Managing Director at Lincoln Pensions, who provided covenant advice to the Trustee said: “ITS knew exactly the type of input the Board would need to form a decision on Project Marathon, and Chris and Akash worked closely with the advisors and the insurer to coordinate the timely delivery of the advice, avoiding any last-minute surprises. Their pro-active approach ultimately delivered a great outcome for members.”

Pension Scheme Buy-out case study by: Chris Martin & Akash Rooprai

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