The London Stock Exchange (LSE) has transferred a portion of its pensioner members liabilities to Pension Corporation (PIC) in a buy-in transaction which see’s PIC insure all their current pension scheme members and automatically insure future pensioners for the next five years. The innovative deal effectively minimises the LSE’s pension risks over a fixed term period allowing them to predict their future costs more easily.
The deal is worth around £203m and allows the LSE to transfer interest, longevity, mortality and investment risks associated with the schemes members over to PIC. A premium of £158m insures all future payments to their existing pension scheme members, while the ongoing contract to insure future members over the next five years is estimated to cost £45m.
Being able to forecast the costs of a pension scheme is becoming extremely important to funds. Risk transfer transactions like this allow them to lock-in insurance for their liabilities at reasonable rates over longer periods and as such are very attractive, especially with longevity risk becoming a high-profile issue in the pensions world.
Jay Shah, Co-Head of Business Origination, Pension Insurance Corporation, said: “We are delighted to have insured another very well-known company scheme and to work with KPMG through this process. Financial analysts are increasingly sensitive to pension scheme volatility and the demands this can make on the company. We are seeing a swell of activity as even the largest companies, both UK and multi-national, seek to manage their pension exposures”.