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UK publishing company agrees £500m buy-in with L&G

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Educational publishing company Pearson has completed a second insurance buy-in with insurer Legal & General (L&G) for its UK pension scheme, taking its de-risked liabilities to around 50%.

The £500m (€574.3m) deal, which secured around 2,200 members’ benefits, followed a similar transaction in 2017 for £600m and was carried out under the same terms, using a so-called “umbrella contract”. In the 2017 deal, Pearson also secured an additional £600m with Aviva.

Chris DeMarco, managing director for UK pension risk transfer at L&G, said establishing this type of contract had enabled smooth execution of the follow up transaction over a short timeframe.

Clive Wellsteed, partner at LCP and lead adviser to the Pearson trustee board, added that the transaction was completed around two weeks after receiving pricing.

He said: “The ease of execution under the umbrella contract meant a win-win for the trustee, [which] was able to lock in attractive pricing relative to the very latest longevity trends, and L&G who got off to a strong start to 2019.”

The deal follows another by the Yorkshire Building Society Pension Scheme, which purchased a £245m pensioner buy-in policy with Pension Insurance Corporation in early February.

Last year was a bumper 12 months for pension risk transfer, with more than £20bn was de-risked. This volume smashed through the previous record of £13.2bn set in 2014.

Adolfo Aponte, director at Lincoln Pensions, said the deal was indicative of a growing trend of “end game planning”, with pension funds seeking to protect liabilities as they unwind over 60 years or more – potentially without the support of a sponsoring company.

Aponte said: “While the market is familiar with the use of insurance to reduce investment and liability volatility, it is also important to note that actions like this reduce the scheme’s exposure to the [employer] and vice versa. We expect more schemes and corporates to follow the likes of Pearson… and estimate that we could see as much as £30bn of similar transactions before the end of the year.”

The pension fund had £3.3bn in assets and £2.8bn in liabilities at the end of 2017, according to its most recent data. In its preliminary company results, published this morning, it reported an £8m charge related to the cost of equalising guaranteed minimum pension payments.

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