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Pension schemes for Hero complete Netherlands' first buy-in deal

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NETHERLANDS - The pension schemes for food manufacturer Hero have completed the Netherlands' first pension buy-in, leading to calls that the method could be used as a stepping stone to completing a buy-out and liquidating pension schemes.

Aegon, which consulted with Hero's chief financial officer Jop Peek on the transfer of nominal pension assets to an insurer, said that following the successful completion of the deal, the company was then able to go one step further and transfer all liabilities off its balance sheet.

Edo De Wit, an actuarial consultant at Aegon who worked with Hero on the transfer, said buy-ins had the advantage of not requiring permission from scheme members, something that otherwise complicated the time frame for full buy-outs.

He added that, because buy-outs are conducted on the day's market price, waiting can mean the difference between a theoretical transfer price of €1m or €1.1m, so he instead proposed schemes conduct a nominal buy-in as the first step.

Jeroen Bogers, product development manager for derisking solutions at Aegon Global Pensions, added that due to the current volatility of interest rates, it could be difficult to determine the price for a buy-out.

De Wit said: "That way, the pension fund is able to do the deal, at that particular moment, at that particular price, without having to bother at that point with the difficult approval process.

"This way, I can at least make sure my nominal rights are insured with an insurance company, without having to wait to achieve the consent of the participants."

Bogers said the successful Hero deal showed that a system so far employed in the UK market could be transferred to the Netherlands and help a scheme set a price at an early stage

"This element of stability can make all the difference in whether or not a pension fund can successfully complete a buyout or not.

"Technically, the buy-in is identical to the UK. In the end, the difference is that the pension funds here have the swap rate, instead of a mix between gilts and swaps, just like insurance companies."

Once the buy-in has been completed, a company will be able to put the idea of a full buy-out to its members.

De Wit explained this was the method employed by Hero, which then liquidated its schemes.

"At that moment, they [Hero] could also determine if there was any money left, and because there was, we could calculate the indexation they were able to purchase at that moment," he said.

He said that one or two pension schemes around the same size as Hero were considering the possibility of a similar transfer, but that size did not matter.

"We've had talks with pension funds of €500m, even €1bn, that want to liquidate the pension funds and place the pension rights with an insurance company," De Wit said. "So the size, I don't think that really matters."

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