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UK roundup: Pearson insures £1.2bn of liabilities in 'umbrella' deal

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The pension fund of FTSE 100 publishing group Pearson has agreed two buy-ins worth £600m (€676m) each with insurers Aviva and Legal & General (L&G).

The deals were agreed under an “umbrella” derisking structure, which will streamline the process for any further transactions.

Clive Wellsteed, partner at consultants LCP and lead adviser to the trustees of the £3.3bn scheme, said: “The key advantage of an umbrella contract, as used by the Pearson Pension Plan, is the ability to complete future buy-ins quickly if pricing is competitive, building on the strong relationships and contract terms already in place with the insurers.”

The deal secures pension payments for roughly 4,800 members.

The umbrella structure is understood to be similar to that employed by the ICI Pension Fund, which has completed 11 separate buy-ins since 2013 – including five in the space of six months last year.

Aviva’s tranche marked the insurer’s biggest single derisking transaction in the UK since it began expanding its capacity in 2014. This year alone the company has hired more than 30 people to its bulk annuity team.

L&G, meanwhile, completed £2.4bn worth of UK pension risk transfer deals in the first half of 2017, and since June has been active in the US market, writing $120m (€102m) of business.

Kerrigan Procter, CEO of L&G Retirement, said the firm was currently quoting on transactions worth a combined £15bn as demand for derisking grows.

‘20% of FTSE 100 schemes would struggle in a recession’

One in five defined benefit (DB) schemes attached to FTSE 100 companies would struggle to meet their benefit obligations during an economic downturn, according to research by consultancy firm Cardano and its covenant advice subsidiary Lincoln Pensions.

The firms analysed funding, covenant and investment risks for FTSE 100 DB schemes – as well as using a stress-testing method employed by the Pension Protection Fund – to construct “The Worry Index”. The 20% of schemes identified as in the “worry zone” had pension risks representing 30% or more of the market value of the sponsoring company.

“In such a stress scenario, the pension deficit of the FTSE 100 would increase by £100bn,” the firms claimed - equal to roughly four years’ worth of pre-tax profits.

Darren Redmayne, chief executive of Lincoln Pensions, said the data was a “wake-up call” for pension schemes to fully adopt integrated risk management methods, as required by the UK’s Pensions Regulator.

“A pension is only as good as the covenant standing behind it,” he said. “This has been sadly demonstrated by cases like BHS and Tata – both were members of the FTSE 100 index in the 1980s.

“Companies need to be around for decades to stand behind defined benefit pension promises. Over such timeframes, markets change and economic events – such as experienced in 2008 – can be expected to occur from time to time.”

Albourne Partners appointed ‘devil’s advocate’ for LGPS pool

The UK’s £12.5bn (€14bn) Local Pensions Partnership (LPP) has appointed Albourne Partners to provide independent third-party research as a check on its internal recommendations for alternative investments.

The original procurement notice referred to access to external research providing a “devil’s advocate to internal investment recommendations”.

Only two firms tendered for the mandate, according to a procurement result notice published earlier today.

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