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L&G wins buy-in as new AUM drops 39%

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UK - The Press Association Pension Fund has completed a £60m (€65m) 'buy-in' of its pensioner liabilities with Legal & General (L&G) at the same time as the insurer revealed its gross new funds under management dropped 39% to £33.1bn (€36bn) in 2008.

Figures from L&G also showed in 2008 its bulk purchase annuities (BPA) sales increased by 73% to £194m, compared to just £112m the previous year, and said the average new single premium case was £10m.

The new business results for the final quarter of 2008 revealed in the 12 months to 31 December 2008 L&G received £33.09bn in new funds, of which £27.57bn came from managed pension funds.

However, this is a 39% fall from the £54.4bn in new funds reported at the end of 2007, and the largest difference was reported in new monies from segregated funds as in 2008 the results were £841m compared with £2.6bn the previous year - a 68% fall.

Overall, the figures confirmed new funds from managed pension funds dropped 47% year-on-year, from £52.1bn to £27.6bn.

The insurer has meanwhile revealed it had only completed one bulk annuity deal with a scheme valued in excess of £100m in the final three months of the year, which reflected "our cautious approach to pricing larger schemes due to volatility in credit markets".

That said, L&G has completed one of the first bulk annuity deals in 2009 through the 'buy-in' of the Press Association (PA) scheme, which has been closed to new members since 2002, and under the terms of the deal the insurer is required to pay the full pension amounts for current pensioners directly to the trustees.

John Spencer, chairman of the Press Association scheme's trustees said: "By entering into this policy with L&G the trustees have removed the investment and mortality risk in respect of the pensioner liabilities. This represents a sizeable risk reduction for the fund with half our assets now invested as an annuity contract."

Steven Brown, managing director at PA Group Limited, said: "The Board of PA Group fully supported the trustees' decision to invest in an annuity contract with L&G. Recent market turmoil has shown the investment risks that companies hold while running a pension scheme not to mention the ever increasing cost through improving life expectancy. We are very happy with the outcome; we have removed a significant amount of risk within the pension scheme at a cost broadly in line with the trustees' funding reserve."

Earlier this week Lane Clark and Peacock (LCP), which advised the PA scheme trustees on the buy-in along with legal advice from CMS Cameron McKenna, claimed the focus of the buyout market would be on buy-ins of pensioner liabilities rather than full scheme buyouts because of increased costs and market volatility. (See earlier IPE article: Pensioner-only focus to drive 2009 buyouts)

David Stewart, partner at LCP, said: "Buyout prices have returned to attractive levels and, whilst recent heavy falls in equity markets mean that full scheme buyout is off the table in most cases, a pensioner buy-in such as undertaken by Press Association can achieve risk reduction without a cash injection being required. In uncertain times such as these we expect pensioner buy-ins to be the preferred buyout route for both trustees and employers during 2009," he added.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com
 

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