Two schemes seal £85m buy-in
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Two unnamed schemes completed a buy-in with Canada Life covering 189 pensioners and 87 deferred members. The deal was done at current pricing despite only being affordable with future employer recovery contributions.
The transaction was advised by specialist consultancy K3 Advisory, in partnership with Cartwright, which provided administration, actuarial and investment advice. The trustees received legal advice from Reed Smith.
“This was a particularly interesting case as the transaction was only affordable due to the employer recovery contributions that had been committed to,” said Thomas Crawshaw, a senior actuarial consultant at K3.
The team wanted to avoid a traditional deferred premium structure, with Crawshaw saying this can be off-putting to some insurers and is relatively expensive. Instead, he said the firm devised “an innovative method that allowed the transaction to proceed without needing to defer the premium”, believing it to be a market first.
Sam Roberts, director of investment consulting at Cartwright, said the approach taken allowed the trustees to secure members’ benefits at current insurance pricing even though to afford this the trustees need the remaining recovery plan contributions.
“The sponsor and the trustees now have significant certainty, and a clear runway to ultimate wind up of the schemes, which is particularly helpful given the likely corporate timelines of the private equity-owned sponsor. It also allowed us to work around some illiquid assets which could take two or three years to run off,” he explained.
Roberts said a ‘vanilla’ approach would not have worked in this case, adding: “The solution is so good that future recovery plan contributions for the larger scheme are being put into an escrow account in anticipation of being returned to the sponsor once the schemes have wound up.”
Linda Gilhooly, who heads up business development at Canada Life, said the consultancies were able to “address and resolve all issues that, as insurers, can sometimes make things more problematic for us”.
How difficult is it to undertake a buy-in for an underfunded scheme?
