The Plumbing & Mechanical Services (U.K.) Industry Pension Scheme, Edinburgh, completed a £560 million ($726 million) buy-in with Legal & General.
The deal covers all of the fund's retirees, equating to about 30% of total liabilities, said Kate Yates, CEO at Plumbing Pensions Administration, the in-house administrator of the pension fund. It is the first bulk annuity transaction for the fund, which has just less than £2 billion in assets.
The buy-in reduces the level of risk in the investment strategy and reduces ongoing volatility for the funded status.
"The challenges facing our (fund) have been well chronicled," said Alan Pickering, chairman of the trustee, in a news release by Lane Clark & Peacock, which was appointed independent specialist buy-in adviser earlier this year. The industry fund hit headlines last year regarding a technical issue within U.K. pensions law, a section 75 employer debt, requiring employers to pay a large exit charge when they leave the fund, said the fund's website.
Mr. Pickering said the trustee is working with the Department for Work and Pensions, The Pensions Regulator and other stakeholders "to find solutions that play fair by all concerned. We have not, however, been resting on our laurels and waiting for things to happen. The buy-in is the result of clear decisions taken by the trustees, hard work by our executive team and an adviser lineup second to none in the team-working stakes. As a result, we can announce a good news pension story — a rarity these days."
Ms. Yates added there are currently no plans to carry out further annuity purchases, although the trustee will continue to monitor ways to reduce risk.
The deal included a price-lock mechanism, which allowed the trustees to lock the buy-in price to the value of the fund's pooled corporate bonds. The ownership of these pooled funds was then transferred to Legal & General.
"Our relationship with the scheme began years ago in our asset management division, LGIM, and this buy-in demonstrates how Legal & General works with pension schemes at all stages of their journeys," said Matt Wilmington, director of strategic transactions at L&G, also in the LCP release. "Working with our colleagues in LGIM and with the trustee's adviser, LCP, we were able to transition assets efficiently and generate both cost and time savings for the scheme."