Education and learning organisation Pearson has completed two pension buy-in transactions totalling £1.2 billion.
The organisation has purchased pension buy-in policies with both Aviva and Legal and General for The Pearson Pension Plan. These transactions, amounting to £600 million per plan and covering around 2,400 members each, will cover approximately two-thirds of the plan’s pensioner liabilities.
The transactions form part of the pension scheme trustees’ strategy to reduce risk by aligning investments more closely with the pension benefits needed to pay member. The buy-ins also transfer the pension scheme’s longevity risk from Pearson to Aviva and Legal and General, which reduces the pension risks being underwritten by the organisation and provides additional security for members.
The buy-in policies have been designed to make monthly payments to the pension plan equal to future pensions for two-thirds of the plan’s current pensioners, reduce the risk that Pearson will be required to contribute extra cash to the pension in future, and contain features that will provide additional security to the pension scheme beyond the protections typically available under an insurance arrangement. Furthermore, the buy-ins will provide a platform for future de-risking through an umbrella contract structure that enables further buy-ins to be completed quickly under the existing contracts.
Members will see no change in how their pension is provided because the buy-ins are held as investments of the pension scheme.
Lane, Clark and Peacock (LCP) acted as lead advisor to the trustees during the transaction process, and law firm Linklaters provided legal advice. Aviva currently provides Pearson’s corporate pension, group protection and health insurance benefits.
Clive Wellsteed, partner at LCP, said: “The key advantage of an umbrella contract, as used by the Pearson Pension Plan, is the ability to complete future buy-ins quickly if pricing is competitive, building on the strong relationships and contract terms already in place with the insurers.”
Andy Briggs, chief executive officer at Aviva UK Insurance, added: “We’re delighted that the trustee for The Pearson Pension Plan has chosen us to insure the pension benefits of its plan members.
“We’re continuing to see very strong demand for bulk annuity deals as more and more trustees look to find the right solution to manage their defined benefit pension schemes.”
Kerrigan Procter, chief executive officer at Legal and General Retirement, said: “As trustee boards and sponsoring [employers] continue to improve scheme funding and manage down their risks, we are seeing demand for buy-ins, buyouts and longevity insurance grow. In the UK alone, we are currently quoting on circa £15 billion of pension buy-in and buyout business. While not every one of these opportunities will transact, it highlights the underlying strength that exists in the market and how increasing numbers of trustees are looking to us to help them deliver their members’ benefits.”