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Impact Investing

IPE special report May 2018

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MNOPF debates complete buyout and winding down of fund's Old Section

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  • MNOPF debates complete buyout and winding down of fund's Old Section

UK - The £3.3bn (€3.7bn) Merchant Navy Officers' Pension Fund (MNOPF) is debating the complete buyout of its €1.3bn Old Section, with the closed section of the fund earmarked for windup if a full transfer of benefits to an insurance company is possible.

According to a letter sent to members of the Old Section at the end of August, the trustee is currently "working to extend" existing insurance cover, which saw the MNOPF insure a total of £600m with Lucida since 2009.

The Old Section was closed to new members in 1978.

Referencing the previous buy-ins with Lucida, which saw the insurance company first take on £500m worth of liabilities in 2009, then a further £100m in May 2010 - the letter seen by IPE said: "This approach has been successful in improving the long-term security of your [the members'] benefits under the Old Section, and, in view of this, the trustee is now working to extend this programme of insurance to cover the remaining liabilities of the Old Section."

The letter continued: "The trustee would then hold these policies as assets of the Old Section in the same way as the Lucida policy."

A spokeswoman for the MNOPF was unable to confirm at the time of writing whether the fund intended to use Lucida once again to buy out the remainder of assets, or if a second insurer would be selected.

The letter, commenting on the timing of the transaction, said it would depend on a number of factors outside the trustee's control.

"However, given the right circumstances, the policy could be in place by autumn," the letter said, with an attached question and answer document outlining that, around one year after the buyout had been completed, the insurance policy would be converted into individual policies for the Old Section's members - in line with an annuity buyout.

"In due course, this would allow the trustee to wind up the Old Section of the fund, which by then would contain no further assets, as these would have been used to purchase the insurance policies," the letter said.

In an interview conducted in August for the current issue of IPE, MNOPF Trustees chief executive Andrew Waring said the Old Section had a funding level of 96% on an all-Gilts basis - an improvement of the 82% reported during the financial crisis, but lower than the 101% figure given in the annual report for the year ending March 2011 - but indicated that a complete buyout was not yet planned.

Waring said it would be in members' interests to settle the outstanding liabilities with a "reputable insurer".

"Because credit spreads over Gilts are still relatively wide, there is an opportunity to look at settling more of the liabilities, which is why we are on an active settlement watch," he said.

"We hope to be able to secure all of our members' benefits within the next five years, and maybe even in a much shorter timeframe."

The MNOPF and Nautilus Pensions Association, representing scheme members, will jointly be hosting a series of forums across the UK, starting this Wednesday in Wallasey, to discuss the proposed changes with members.

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