The AIB Group UK Pension Scheme has agreed a £61m (€70.4m) transaction with Legal and General Assurance Society to convert a tranche of its existing Assured Payment Policy (APP) into a buy-in policy.
The transaction, which aims to further de-risk the pension scheme, did not require any additional funding from the scheme’s sponsor, AIB Plc, as expected, it was announced.
Covering both deferred members and new retirees, the transaction marks the first time an APP has been partially converted into a new buy-in policy.
The conversion builds upon the original £250m APP transaction with the AIB Group scheme in 2019, and follows a £400m APP transaction with the Legal & General Group UK Senior Pension Scheme.
The original transaction, and announced conversion, helps the AIB scheme on its journey to full risk removal within planned timeframes.
The APP solution facilitates this by locking down investment-related risks and reducing volatility between the assets and bulk annuity pricing of the cashflows covered by the APP.
As the APP already covered investment risk for the covered cashflows, the additional premium payable by the trustee for the conversion was only in respect of the additional risks, principally longevity, that are now being passed to Legal & General.
The scheme was advised on the transaction by Mercer, with Sackers providing legal advice.
Norbert Bannon, chair of the AIB scheme’s trustees, said: “This transaction represents further substantial progress in derisking the scheme and improving the security of members benefits. I would like to thank our advisors for their constructive input and advice throughout this process.”
Frankie Borrell, head of client solutions at Legal & General Retirement Institutional, said: “By entering into an Assured Payment Policy in 2019, the trustees and their corporate sponsor secured a more certain path to the pension scheme’s target destination. This transaction represents a key milestone on that journey.”
He said this first conversion also ”underscores how APPs can deliver meaningful benefits for many trustees and their scheme members in the months and years ahead”.
Wyeth £190m buy-in
Separately, the trustees of the Wyeth Group Pension and Life Assurance Scheme (1997) have completed a bulk purchase annuity buy-in transaction with Aviva.
The buy-in was a £190m deal for the pension scheme, an employer in the Pfizer Group, with Aviva providing the insurance.
The deal removes the investment and longevity risk associated with the defined benefit (DB) liabilities of around 2,000 members of the Wyeth scheme.
According to Aviva, the transaction will ultimately secure benefits for those members with both DB and defined contribution arrangements following a period after the initial buy-in.
Debbie Berney, chair of trustees, said: “We welcome this transaction as our second phase in ensuring the scheme is able to meet the full costs of its future pension payments to all members.”
Patrick McKenna, senior director international pensions at Pfizer, added: “This is another important step for the scheme and wider group as we seek to secure members’ benefits and reduce the risk exposures of our pension arrangements.
“Aviva put forward attractive pricing and innovative proposals to address a complex set of benefits, and we are pleased to partner with them on this transaction.”
The process to select an insurer and negotiate terms was led by Mercer on behalf of the trustees, with Allen & Overy LLP providing legal advice.
According to Suthan Rajagopalan, risk transfer partner at Mercer the challenge for this transaction, as a follow on to the Wyeth scheme’s pensioner buy-in in 2018, was how to cost effectively insure the residual deferred pensioners.
“Mercer was pleased to deliver the trustees both highly competitive market pricing and terms, including a price lock to Scheme assets,” he said.