Prudential in £272m buy-out of public-sector pension fund

by Artemis on April 20, 2012

Prudential have entered into a pension buy-out agreement with a closed UK public-sector pension fund. The deal see’s Prudential take on £272m of pension assets from the West Midlands Integrated Transport Authority’s part of the £7.7 billion West Midlands Pension Fund, according to this article in Financial News.

This transaction is an unusual occurrence as government backed schemes rarely feel the need to offload longevity and investment risks due to their public-supported nature.

Mercer’s pension consultancy team advised on the transaction.

We don’t have any more details on the structure of this transaction at the moment, it appears to be a fairly straightforward buy-out of assets and liabilities which transfers the longevity risk associated with this scheme to Prudential.

Update: Mercer have sent us a press release regarding this deal, it follows in full below.

West Midlands Integrated Transport Authority completes first Local Government Pension Scheme buy-in

  • £272 million buy-in of pensioner liabilities insured by Prudential
  • Deal marks start of local authority involvement in UK’s buy-in market

London, 19 April 2012 – West Midlands Integrated Transport Authority (WMITA) has completed the buy-in of its pensioners with Prudential and the assistance of Mercer and Squire Saunders. This is the first such transaction for any local government pension fund. With a premium in the region of £272 million, this is the largest such transaction to date in 2012.

According to Geik Drever, Director of Pensions at the West Midlands Pension Fund, “This transaction forms an important part of the WMITA Fund’s risk management strategy and has insured c50% of the Fund’s liabilities. It has protected the Fund and the sponsor against the volatility of investment markets and any unanticipated increases in life expectancy of the pensioners. Risk management is a very important part of Local Authority governance for both the Main Fund and the WMITA Fund, and as such this is a welcome outcome given the policies in place for the Funds as well as the Authority.”

According to Clifford Sims, partner at Squire Saunders, the law firm which advised the Authority and West Midlands Pensions Fund on the legal issues surrounding the transaction : “As in all local government contracts, the public sector procurement process, which requires great depth of transparency and objectivity, had to be followed. This transaction is the first time that these procedures have been entwined in the processes surrounding a bulk annuity transaction. Another feature was that the price was determined by an electronic auction process enabling the price to be settled in a matter of hours.”

Paul Middleman, Fund Actuary and Head of Public Sector Consulting, said: “Whilst we have seen this in the private sector this is breaking new ground in the sector in terms of local authority pension fund risk management for a sponsoring employer and ultimately the taxpayer. The transaction required a team with specialist knowledge and experience when determining whether it was the right option. Now one Fund has taken the plunge we could see this becoming a viable option for Funds when dealing with legacy liabilities as part of the governance around their risk management strategy.”

Akash Rooprai, a Principal at Mercer and broker for the transaction, commented: “By liaising closely with the insurers, we helped them understand the public procurement requirements, and using our experience of the private sector ensured there was good competition for this business.”

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