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IPE special report May 2018

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UK plumbing industry pension scheme secures £560m buy-in

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The UK’s Plumbing & Mechanical Services Industry Pension Scheme has completed a £560m (€612m) buy-in with Legal & General covering pensioner members of the multi-employer scheme. 

Announced only today, the transaction was completed in June 2017 and represents just over 10% of the bulk annuity business (£5.1bn) written in the first half of 2017.

The scheme has just under £2bn of assets, according to a statement about the buy-in.

The transaction “significantly” reduced the level of risk in the scheme’s investment strategy and will reduce ongoing volatility in the scheme’s funding level, according to the statement.

Alan Pickering, chairman of the trustee board, said the buy-in was a “good news pension story”.

“The challenges facing our Plumbing Industry Pension Scheme have been well chronicled,” he said. “We are working with [the Department for Work and Pensions, The Pensions Regulator], and other stakeholders to find solutions that play fair by all concerned. 

“We have not, however, been resting on our laurels and waiting for things to happen.”

The trustees had taken “clear decisions” in going for a buy-in, he added.

Many small businesses contributing to the scheme are facing the prospect of personal bankruptcy if they have to pay so-called Section 75 debt obligations. This is an exit charge that can involve paying for the debt of companies that have previously left the scheme or gone bust, known as orphan liabilities.

Earlier this year the Department for Work and Pensions consulted on whether rules that could allow employers seeking to exit industry-wide schemes to postpone section 75 debt payments.

LCP acted as independent specialist buy-in adviser for the plumbing scheme.

Clive Wellsteed, head of LCP’s de-risking practice and lead adviser to the trustee, said: “There was enormous insurer interest in this transaction from a buy-in market that is currently firing on all cylinders.”

The transaction is said to have included an innovative price lock mechanism that allowed the trustee to lock the buy-in price to the value of the scheme’s pooled corporate bonds and then transfer the ownership of these pooled funds to L&G.

As at April 2016, the scheme was 87% funded on an actuarial basis. As at its last triennial valuation, from April 2014, the funding level was 101%.

Buy-in and buy-out business for UK pension plans grew by 88% in the first half of this year compared with the same time last year, according to LCP.

Last month it said activity had the potential to surpass the record £13.2bn set in 2014. 

 

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