LGPS fund insures bus company liabilities for £200m
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The Merseyside Pension Fund, part of the Local Government Pension Scheme, has completed a £200m buy-in of liabilities linked to Arriva Merseyside. The company provides bus services in North West England. The deal covers 2,500 members in full.
The transaction was completed with Aviva in June this year. Mercer was the lead adviser on the transaction, with input from Paul Middleman as the fund actuary, while Eversheds Sutherland gave legal advice to Wirral Metropolitan Borough Council, the administering authority for Merseyside Pension Fund.
“We are delighted to have expanded our risk management strategy to achieve greater certainty of cost for the fund’s biggest non-public sector constituent employer, Arriva Merseyside, whilst simultaneously improving governance and reducing risk across the employer base with Aviva,” said Peter Wallach, director of pensions at Wirral Council.
He added: “Merseyside Pension Fund has become a charter signatory and we look forward to working collaboratively with Aviva, Mercer and other signatories, post-transaction.”
Merseyside is now one of eight pension schemes and one in-house investment management firm that have signed up to the charter.
Arriva’s group pensions manager Ian Kirk said his employer fully supports Wirral’s decision to derisk with Aviva: “Our number one priority across all of our pension schemes is to minimise risk and protect member benefits, and this transaction does just that."
The administering authority made clear up front the requirements to meet their environmental, social and governance expectations, noted senior deal manager at Aviva, John Fothergill.
“This enabled us to efficiently deliver what they needed in order to proceed with Aviva,” he explained.
Aviva is a founding signatory to the Sustainability Principles Charter for Bulk Purchase Annuities, along with the majority of bulk annuity providers. The insurer aims to become net zero by 2040, claiming to be the first major insurance company in the world to make the pledge in 2021. It has also committed to net zero carbon emissions from its operations and supply chain by 2030.
Aviva has completed bulk annuity deals with Deutsche Bank, NTL, the British Red Cross and the Guilbert UK scheme among others.
Admin bottleneck expected in the market
New analysis by consultancy Hymans Robertson shows a 40% increase in buy-ins between H1 2024 and the first six months of last year.
In the first half of 2024, 134 buy-ins covered £15.3bn of pension scheme liabilities. Hymans expects more than 250 buy-ins to take place this year, insuring around £40bn of pension scheme liabilities, slightly below the £49.1bn record of last year.
“Helped by the new entrants, I expect it won’t be long before we see 300 buy-ins in a single calendar year,” said James Mullins, who heads up risk transfer at the consultancy.
As the majority of these transactions are whole-scheme buy-ins, many will subsequently want to move to buyout.
“That could create an administration bottleneck, and so trustees need to carefully test their chosen insurance company’s capacity for ongoing administration and the transition to buyout,” Mullins warned.
Will administration capacity keep up with the volume of transactions?
