Innovative insurance de-risking solution results in a substantial 30% reduction in the buy-in shortfall for UK pension scheme.
14 July 2014
Legal & General has recently completed a buy-in arrangement with a UK pension scheme, which covers £16m of the scheme’s pension liabilities but also importantly, resulted in a substantial reduction in the buy-in shortfall for the scheme, of 30%.
Legal & General Retirement, (LGR) and Legal & General Investment Management, (LGIM), worked with the Trustees to develop an innovative de-risking solution, which helped them to achieve their objective of insuring all the remaining pension scheme liabilities. However, by using Legal & General’s online monitoring, analytics and risk management tool, PRISM, to regularly monitor the de-risking cost of the insurance, against the value of the scheme’s assets, the Trustees were able to insure the remaining liabilities at a point when the shortfall was £1.4m less than it had been on previous occasions over the time the de-risking solution was being considered – This was a substantial reduction in the shortfall of around 30% to the employer.
The arrangement also incorporated a deferred premium facility, which allowed the Trustees to fully insure the benefits for the members immediately, using the scheme assets, without the need for an additional upfront lump sum contribution to cover the deficit. In this case, the shortfall of around £3m of the full premium, will be paid over the next three years, in line with the scheme’s current recovery plan or potentially sooner if this suits the employer.
This is the second buy-in arranged by the scheme with Legal & General. The first was in March 2013, and this second de-risking arrangement now insures all the remaining members.
Tom Ground, Head of Bulk Annuities and Longevity Insurance, for Legal & General’s Retirement business said: "Bringing together our Investment Management and Insurance teams we are able to deliver flexible, time critical and cost effect de-risking insurance solutions for most schemes. The PRISM platform provides Trustee with the up to date information they need to be able to make an informed decision, often within incredibly short timescales and so insure their liabilities at the most opportune time. Then using our deferred premium facility is an added bonus, which allows schemes to effectively manage the financial cost.
Trustees and companies are becoming increasingly aware of how our deferred premium facility works with other more traditional de-risking solutions to achieve their objectives. In this case, the combination of the price monitoring and the deferred structure was essential to allow the scheme to insure their liabilities effectively. This solution is available for both large and smaller schemes.”
Legal & General is a leader in the de-risking insurance solutions market recognised for the experience that has been gained over the past 27 years and by arranging over 3,250 bulk annuity policies.
More detail on the PRISM service is if available via http://www.lgim.com/uk/en/solutions/defined-benefit/legal-and-general-prism/
Legal & General was the first provider to develop the deferred premium structure solution, which was used to secure the de-risking arrangement for the Kenwood Pension Scheme, in 2013. Legal & General’s innovative deferred premium facility, linked with the cost saving capability that PRISM offers schemes and Trustees, demonstrates the flexibility and capability of the range of de-risking solutions that Legal & General is able to arrange for pension schemes, of all sizes.
Corporates, Trustees or advisers looking for further information on the pension scheme insurance de-risking solutions available from Legal & General should call the Bulk Annuity and Longevity Insurance team on 020 3124 2994.
Notes to editors
The pension scheme that secured this arrangement does not wish to be named and we respect their wishes.
Background on Legal & General
Legal & General is one of the UK's leading financial services companies and one of the UK's top 50 companies in the FTSE 100 Index. Legal & General has been an active participant in the insurance solution pension de-risking market for over 25 years and was voted Risk Reduction Provider of the Year at the 2014 and 2013 UK Pensions Awards and Risk Management Provider of the Year at the Pensions Age Awards 2014.
Legal & General provides annuities to over 750,000 current pensioners and over 170,000 deferred pensioners and also completed a number of landmark transactions. These include the recent £3.0bn bulk annuity arrangement with the ICI Pension Fund, the largest bulk annuity policy arranged by a pension scheme in the UK to date, and the £3.2bn longevity insurance transaction with the BAE Systems 2000 Pension Plan.
Legal & General offers a range of de-risking solutions, which includes buyout, buy-in, longevity insurance and liability-driven investment (LDI), to pension schemes of all sizes. Legal & General is also able to tailor a combination of LDI and longevity insurance to provide “DIY buy-in” solutions. Legal & General has expertise in investment management, all aspects of defined benefit provision as well as an in-depth understanding of mortality trends and longevity risk. The excellent services we are able to provide also include payroll, administration and communications services.
The information contained in this release is intended solely for journalists and should not be used by consumers to make financial decisions.
Legal & General Assurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Legal & General Assurance Society Limited. Registered address: One Coleman Street, London EC2R 5AA. Registered in England No 166055.
For more information please contact:
t: +44 (0) 1737 375369
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