Mercer assists Standard Life in £100m defined contribution (DC) pension scheme buyout

by Artemis on October 14, 2011

Mercer have assisted in the completion of the latest pension scheme buyout transaction which saw the benefits of 3,500 pension plan members have their assets of around £100m transferred to Standard Life. The majority of the pension scheme belonging to British publisher and media company EMAP was transferred to Standard Life while the remainder were allowed to move to their own nominated provider.

Pension buyouts are increasingly a popular choice for companies seeking to offload longevity risks associated with their pension schemes. We’re keen to see how those doing the buying out manage the longevity risks they are assuming, as the capital markets seem the natural place for it to be offloaded to. This buyout transaction is one of the largest defined contribution buyouts to be undertaken in the UK, said Mercer.

Edit: Kiffmeister kindly corrects us on the longevity risk involved in this transaction or lack there of (see comments below).

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Kiffmeister October 14, 2011 at 4:26 pm

But is there any longevity risk transfer in this transaction? After all doesn’t a DC plan puts all of the longevity risk to the employees? I’ve assumed all of the big buyouts and swaps (e.g., the recent ITV transaction) were against DB plans, but I’ll have to back and check my notes…

admin October 14, 2011 at 4:33 pm

Hmm, a very good question! One would assume that there is an element of longevity risk in the scheme as members may live longer than expected and that it would be transferred to the insurer doing the buyout? Always happy to be corrected!

Kiffmeister October 14, 2011 at 4:39 pm

I guess only EMAP and Standard Life know the answer to that question, but was EMAP facing any longevity risk in the first place. I thought that was the idea of a DC plan – for the employer to put all of the longevity risk to the employees? Hence there’s no longevity risk to transfer!?

admin October 14, 2011 at 4:57 pm

You have a point, and we do seem to be wrong on this as defined contribution only payout based on how much has been saved. So meaning that if you live longer the risk sits with you. Edited above.

Still, I am keen to see how those who do assume longevity risk in buyouts manage it!

Thanks for commenting and clarifying that!

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