The trustees of the Boots Pension Scheme have agreed £4.8bn buy-in with Legal & General, insuring all 53,000 members in the scheme. The pharmacy chain is injecting nearly £700m to make the deal happen. 

 

Boots will bring forward about £170m of payments to the scheme and has committed an extra £500m to the scheme. The transaction also involves the termination and replacement of an internal guarantee and insurance protections, as well as dealing with a large illiquid portfolio. 

 

The entire process is expected to take up to two years. Members of the scheme will be given individual annuity policies by L&G, enabling the scheme to be wound up. 

  

Trustee chair Alan Baker, a professional trustee from Law Debenture Pension Trust Corporation, said the transaction removes market uncertainty and other financial exposures.  

 

“We welcome the additional payment from Boots, in addition to the sum it has already committed. As a result, the scheme will not be reliant on Boots to pay benefits to members and our members’ pensions will be protected for decades to come,” Baker said. 

 

Sebastian James, senior vice president and managing director at Boots, added: "We are very pleased to have achieved the gold standard outcome for our pension scheme and to have fully secured the benefits of all members with a highly respected insurer. This will provide greater certainty to both the scheme members and to Boots, and is an excellent outcome for both parties." 

 

Andrew Kail, CEO, Legal & General Retirement Institutional, said the agreement was testament to the long-standing relationship between Boots and L&G. 

 

“We are continuing to see an unprecedented acceleration in demand in this sector, driven by more pension schemes being closer to buyout than ever before,” he added. 

  

The buy-in is the UK's largest single transaction of its kind by premium size and, for L&G, the largest single transaction by number of members, the insurer said. 

It said the transaction provides a combined investment and insurance solution for the scheme's assets, which are being transferred. 

 

The firm said it has written £13.4bn of global pension risk so far this year, including £5bn in the first half of the year and a further £7.2bn of new business in the UK, as well as $1.5bn in the US. 

 

L&G said: “We operate a capital light business. We have deployed £270m of capital to write £12.1bn of UK PRT. As indicated at HY23, we expect to achieve self-sustainability on the UK annuity portfolio again in 2023.”  

 

Aon acted as the strategic adviser, lead investment adviser and broker for the transaction representing the trustee. Sackers advised the trustees on legal aspects. Walgreens Boots Alliance, the scheme sponsor, used the services of consultancy Cardano to help broker the deal and provide strategic advice. Baker McKenzie gave legal advice to the company.  

    

John Baines, partner in the risk settlement team at Aon in the UK, said a key element in achieving the transaction was dealing with the significant portfolio of illiquid investments held by the scheme. 

 

“This transaction is further evidence of the innovation that can be achieved at scale and pace in an incredibly busy, yet buoyant, insurance market,” Baines said. 

  

Adolfo Aponte, managing director risk solutions at Cardano Advisory, agreed: “This multi-faceted transaction breaks new ground on a number of fronts, including illiquid asset exits, deferred funding structures and speed of execution. In doing so it has expanded the tools available to corporates and pension schemes that are adapting to a new economic reality of higher interest rates and inflation, as well as the prospect of regulatory change.”   

 

Aponte noted that the Boots Pension Scheme “has a long history of innovation”. In 2001, the scheme moved to 100% AAA/Aaa long-dated sterling bonds, selling more than £1bn in equities, instigated by the company’s then head of corporate finance John Ralfe. This was unique at a time when the majority of UK defined benefit assets were still held in equities. 

 

Today, most DB schemes are derisking and for many, the objective is an insurance buyout. The market is booming this year after DB liabilities fell more than assets for a large number of schemes. The market is expected to exceed £40bn. 

The deal comes at the same time as a £4bn buy-in between Co-op and Rothesay was announced this morning.