Lane Clark & Peacock advises Press Association pension fund trustees on £60m pensioner buy-in deal
Lane Clark & Peacock (LCP), a leading provider of pension scheme buyout advice, has advised the trustees of the Press Association Pension Fund on a £60m pensioner buy-in.
The transaction was a “buy-in” of the pensioner liabilities whereby the trustees hold the insurance policy as an investment of the pension scheme. Under the terms of the policy Legal & General are required to pay the full pension amounts for current pensioners directly to the trustees.
John Spencer, Chairman of the Trustees said: “By entering into this policy with Legal & General the trustees have removed the investment and mortality risk in respect of the pensioner liabilities. This represents a sizeable risk reduction for the fund with half our assets now invested as an annuity contract. The trustees took professional advice before making this investment choice. Legal & General satisfied the trustees’ requirement on a variety of issues including the strength of their finances. LCP took us step by step through the process so that all trustees had a detailed understanding of the decisions they were making.”
Benefits for members of the Press Association Pension Fund will not be affected by this change to investment arrangements. The fund has been closed to new members since 2002.
Steven Brown, Managing Director at PA Group Limited, owners of the Press Association, said “The Board of PA Group fully supported the trustees’ decision to invest in an annuity contract with Legal & General. Recent market turmoil has shown the investment risks that companies hold while running a pension scheme not to mention the ever increasing cost through improving life expectancy. We are very happy with the outcome; we have removed a significant amount of risk within the pension scheme at a cost broadly in line with the trustees’ funding reserve.”
LCP partner David Stewart, who advised the trustees on the transaction, said “We are delighted to have helped the trustees complete this deal in such turbulent times on very favourable terms. There has been a flurry of pension buyout deals completed in the past month, including Thorn and Dairy Crest, demonstrating a renewed confidence in the market following the financial crisis.”
He added “Buyout prices have returned to attractive levels and, whilst recent heavy falls in equity markets mean that full scheme buyout is off the table in most cases, a pensioner buy-in such as undertaken by Press Association can achieve risk reduction without a cash injection being required. In uncertain times such as these we expect pensioner buy-ins to be the preferred buyout route for both trustees and employers during 2009.”
LCP’s analysis shows that around £8bn of deals completed in 2008 despite the financial crisis in the fourth quarter. Around two thirds of medium to large deals were structured as pensioner buy-ins in 2008 and LCP predicts this proportion will increase during 2009.
Legal advice on the deal was provided by Mark Grant and Dominic Harris of CMS Cameron McKenna.
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