TRW Automotive has completed a £2.5 billion buyout of part of its defined benefit (DB) pension scheme.
The buyout, for which consultancy Mercer was a lead adviser, changed the scheme from a £3.5 billion plan to a £1 billion plan over the course of a year.
The transaction, which covers 22,000 UK pensioners in payment, also involved Legal and General as insurance partner and Hymans Robertson as lead actuaries and investment consultants to the trustees.
TRW’s pension scheme employed an investment strategy, implemented following the 2008 economic downturn, which resulted in a gradual improvement in the funding level, allowing TRW to embark on this multi-stage risk transfer project.
Mercer also acted as strategic corporate adviser on the wider de-risking of TRW’s UK, US and Canadian pension arrangements in a coordinated series of exercises.
The full UK risk transfer project, which was designed to remove the financial risk posed by TRW’s UK pension scheme, included a variety of pension risk management exercises, which ran concurrently, including a pension increase exchange (Pie), an enhanced transfer value exercise (ETV), winding up lump sums, equalisation of guaranteed minimum pensions and a pensioner buy-out.
Joseph S Cantie, executive vice president and chief financial officer at TRW Automotive, said: “This pension buyout significantly de-risks TRW Automotive’s balance sheet position, removing over £2 billion of pension risk in the UK. We worked closely with the trustee throughout the process.”
David Ellis, UK head of bulk pensions insurance at Mercer, added: “The innovations employed here work for plans of all sizes and shows what can be achieved when companies and trustees use a combination of de-risking strategies.”