M&G has completed the first ‘value share’ bulk purchase annuity with an unnamed corporate sponsor and its UK pension scheme, covering the benefits of 3,200 pensioners and deferred members in a roughly £500m transaction. 
 
The new proposition is described as an alternative to a traditional buy-in. The value share means scheme members are insured in the same way as through a traditional buy-in but allows the scheme sponsor to participate in the financial risk and reward generated from insuring its well funded schemes, according to M&G. 

The insuring entity is M&G subsidiary the Prudential Assurance Company, and a captive reinsurer was established in Guernsey to participate in both the upside and downside of the buy-in alongside PAC. 

PwC was the lead transaction adviser, which included advising the sponsor on the buy-in and captive implementation. The trustees were advised by Mercer and Macfarlanes. Legal advice was provided to the sponsor by CMS and to M&G by Eversheds Sutherland. The captive reinsurer received advice from Carey Olsen, Marsh McLennan (Oliver Wyman and Mercer) and PwC, and will use SRS Management Guernsey as its insurance manager. 

M&G re-entered the bulk annuity market in September 2023 and says it has since written about £1.4bn of new business, having already completed more than 400 transactions between 1997 and 2016.   In July this year, it completed its third buy-in since re-entering the market, for the NSK Pension Scheme. At that point, it had written £930m of new business.

“By completing the first ever BPA transaction that shares value with the sponsor, we are showcasing our ability to create innovative solutions that address our clients’ requirements,” said M&G’s life insurance chief executive Clive Bolton. 

“This has the potential to transform the market by providing an alternative option for sponsors of large UK pension schemes to consider as part of their derisking endgame. We look forward to working with clients and advisers as we tailor this solution to meet the needs of corporate sponsors whilst securing the future pensions for the scheme members,” Bolton added. 

M&G is looking to expand its share of the risk transfer market. It recently hired Kerrigan Procter as managing director of its Corporate Risk Solutions business. Joining in January 2025, Procter will lead the firm's growth strategy in the UK derisking market.

PwC partner Alison Fleming said the value share deal was the culmination of work with the sponsor on pensions over a number of years.

“The solution we have achieved ultimately enables the trustee to achieve their derisking objectives and secure members’ benefits, whilst enabling the sponsor to access risks and rewards that would be passed to an insurer in a more traditional transaction,” Fleming added. 

Deborah McWhinney, risk transfer principal at Mercer, the risk transfer specialist, scheme actuary and investment adviser to the scheme, said: “The value share BPA transaction represents an impressive outcome for the trustee board and reflects their dedication in achieving their derisking objective for their members.” 

This new type of risk transfer structure, where the insurer forgoes some upside to attract sponsors, could force a rethink in the market. Iain Pearce, who heads up alternative risk transfer at Hymans Robertson, welcomed the innovation. 

“With many schemes considering their preferred endgame, weighing up the merits of maintaining access to an anticipated emerging surplus against the risks associated with not settling, there will be many cases where trustees and sponsors have different views,” Pearce said. 

He said this type of solution balances the needs of the members and the sponsor and could pave the way for others. 

“As we are seeing in the superfund market, the first wave of transactions for new solutions build confidence from potential buyers and smooth the path for others to follow. As a number of trustees and sponsors reassess their priorities, we expect these types of solutions to be interesting to many,” he said. 

The pensions sector has struggled somewhat to come up with new ways of taking pension risk off sponsors’ balance sheet in ways other than insurance, as defined benefit schemes mature but not all sponsors are willing or able to pay the premiums insurers demand for taking on longevity risk. 

Pension superfunds had a difficult journey since their emergence in the mid-2010s, with legislation stalling for several years. A public sector consolidator run by the Pension Protection Fund, proposed under the previous government, appears to no longer be on the cards.

All innovations in the endgame market to date still ultimately target risk transfer to an insurer, including DB consolidator Clara-Pensions and the capital-backed journey plan funded by Aspinall in 2020.