Sony winds down UK scheme after cash injection
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
The UK defined benefit scheme of Japanese company Sony is being wound up this month, after insuring all of its liabilities and turning two buy-ins into buyouts. The electronics giant had paid £168.3m into the scheme for the second buy-in.
Early last year, the Sony UK Pension Scheme bought in the remainder of its liabilities with Rothesay Life, excluding any additional liabilities for GMP equalisation. To enable the Rothesay transaction, Sony paid £168.3m to the scheme in addition to any previously agreed deficit recovery contribution, lifting the scheme’s funding level to 100%.
The size of the transaction was not revealed, but the fund had already ‘top-sliced’ the highest liability members through a buy-in using medical data with insurer Just in 2017. In March 2021, the £811m scheme held £722m with Rothesay and £84m with Just, as well as some cash and additional voluntary contributions.
The two buy-in policies were then turned into buyouts, a process the trustees expected to be complete by the middle of this year, according to the scheme’s 2021 report.
The 3,000-member scheme also saw £38.8m of DB pensions being transferred out in the year to the end of March 2021, representing nearly 5% of assets.
It is not clear if there was a liability management exercise ahead of the transaction. Matthew Swynnerton, a partner at law firm DLA Piper, said the scheme might have gone through an exercise as employers sometimes offer enhanced transfer values ahead of projects.
When offering transfer values, trustees now “have the scam aspect to think about”, he stressed, advising them to do “ordinary due diligence” to minimise the risk of members falling victim.
Economic downturn could bring out differences in appetite for buyout
Swynnerton said with many schemes seeing their deficits shrink as a result of recent market movements and being closer to buyout than they thought they would be at this point, some employers might therefore accelerate buyout funding.
As the economy is expected to go into recession, however, differences will emerge between sectors that are more or less exposed to it.
While some employers are keen to let the scheme run on, others are willing to put their hand into their pocket “and suffer a bit of short-term pain to remove the liability”, he said. However, some firms could increasingly be nervous about earmarking cash for their DB scheme as the country heads into a downturn.
Nonetheless, the buyout market “does seem busy”, said Swynnerton, noting that some of this is driven by insurers looking to meet their year-end targets.
“Preparedness is key. It's a very busy market, so insurers are able to pick and choose deals,” he said, often preferring larger ones. “Particularly if you are a slightly smaller proposition it’s really important you have done as much as you can.”
Adam Davis, managing director at buyout consultancy K3 Advisory, agreed that “it’s a fairly hectic time in the bulk annuity market”.
