Designer wallpaper supplier Graham and Brown has entered into a pension insurance buy-in agreement for its defined benefit (DB) pension scheme with Pension Insurance Corporation (PIC).
The transaction, which covers around £15 million of liabilities, allows the trustees to insure all pensioners at the point of signing the transaction, but with only 50% of the premium paid up front. The remaining premium will be paid over five years.
Under this structure, the trustees have immediately insured the key risks associated with paying the pensions, such as longevity, inflation and interest rate.
The transaction allows the trustees to defer the premium needed to insure deflation risk to the point when deflation occurs, saving around 5% on the premium for a subset of the insured pensions. PIC has also agreed to administer future retirees as they arise.
The trustees have been advised by Xafinity Consulting.
John Carter, chairman of the trustees for the Graham and Brown pension scheme, said: “This buy-in with PIC has allowed us to achieve our aim of insuring all our pensioners on day one, despite having a small deficit.
“The deferred premiums will be payable over the next five years, replicating the scheme’s funding plan, but removing volatility and risk, and providing certainty about pension payments.”
Matt Barnes, senior actuary at PIC, said: “The trustees of the Graham and Brown pension scheme have been very proactive in addressing the risk that funding for a buy-in might move away from them.
“As a paternalistic employer with a reputation for looking after its staff, I am not surprised it has sought a structure that others might not have considered.”
Bill Holmes, head of investment at Xafinity Consulting, added: “We are delighted to help another scheme to meet its objectives and benefit from recent improvements in buy-in pricing.
“We have been advising the trustees on how to achieve their de-risking objectives in a number of areas, most recently the buy-in of the scheme’s pensioner liabilities.
“We are very pleased to have worked closely with PIC to agree an imaginative solution that further progresses these de-risking goals.”
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