Transferring all or a significant proportion of a pension scheme's risk to an insurer is one of the most important events in a pension scheme's lifetime.
For trustees, risk transfer transactions mean making a series of critical decisions. We can support trustees in making them and ensuring the relevant risks are definitely transferred on favourable terms.
Our expert team, led by partner Paul Feathers, has a wealth of experience, as well as a detailed understanding of the pensions insurance market and the legal issues arising in relation to risk transfer contracts.
Our approach to advising trustees ensures they:
- minimise the risk of legal issues adversely affecting pricing or blocking the transaction through effective preparation
- enjoy increased execution certainty by working in partnership with a team which knows the market and the insurers well and has a proven track record of working constructively and efficiently with the insurers and their advisers to overcome challenges and complete transactions
- have the peace of mind of knowing that they are transferring risk with legal certainty, almost always on more favourable terms than the insurers initially propose
- understand the terms of the contract they are signing: risk transfer contracts are often complex, but we explain the provisions clearly, in plain English
Expertise and experience covering all transaction sizes
Regardless of your scheme's size, we will have experience of similar sized risk transfer transactions. As we have seen most issues before, clients can expect to receive effective solutions and to avoid delays (which can be fatal to this type of transaction).
For small and medium sized schemes (up to £250 million asset value) we can provide access to LCP's streamlined process for buy-ins and buy-outs. It provides trustees with:
- access to market leading risk transfer employee benefits consultants and lawyers
- increased execution certainty through an expedited process
- materially better terms than those which are routinely available for similar sized transactions
- cost certainty because the fees are fixed up front
- the benefit of the experience arising from providing the first streamlined risk transfer process in the market and having successfully competed more transactions than other, similar offerings in the market
We are equally happy working with trustees' incumbent employee benefit consultants and have strong working relationships with all the leading providers in the market.
Larger scheme transactions
Risk transfer transactions for larger schemes often require a very different approach to smaller transactions. This is because trustees of larger schemes are typically in a stronger negotiating position. Careful planning is essential to ensure trustees benefit from improved transaction terms.
Our wide experience of advising both trustees and insurers on larger transactions means that we are ideally placed to work closely with the trustees' employee benefit consultants to formulate preferred terms for a transaction (based on our knowledge of what is obtainable in the market) and to ensure that those terms are accurately documented in the contract.
We advised the Delta Pension Plan trustees on the legal structure for the £450 million partial buyout of its pensioners. The structure of this transaction ensured the sponsoring employer achieved its objective of removing significant pensions liabilities from its balance sheet quickly, while protecting the members' interests.
We've helped numerous clients with specialist transactions too, including "all risks" transactions and "Pension Protection Fund (PPF) plus" transactions.
The concept of "all risks" insurance has different meanings to different insurers and trustees. But, essentially, they require an insurer to assume a degree of risk over and above the payment of benefits for the lifetime of each known beneficiary, calculated in accordance with a benefit specification.
We have advised the Trustees of a £3 billion scheme on a number of buy-ins with different insurers which will be converted to "all risks" trades when a pre-agreed trigger event takes place. We ensured they were fully aware of the options for insuring different types of risk and subsequently that the negotiated terms transferred effectively the appropriate risks to the insurer.
"PPF plus" transactions involve pension schemes which have exited the Pension Protection Fund because they have sufficient assets to buy-out benefits at least equal in value to PPF compensation but insufficient assets to secure benefits in full. Trustees must make a number of key decisions over and above those in "vanilla" transactions, such as the "shape" of benefits to buy for members.
We have advised on five of these transactions, including advising the Trustees of the UK Can Scheme on the first transaction of this type and Rothesay Life on the £830 million buyout of the Uniq Pension Scheme.
Our experience leaves us ideally placed to ensure trustees understand the key legal issues and are in a position to make informed choices at the right time.
Longevity hedging transactions enable trustees to hedge against the additional liabilities arising because pension scheme members live longer than anticipated. They remain relatively complicated and, to a large extent, the preserve of larger schemes.