British-Swedish pharmaceutical group AstraZeneca is turning to pension buyouts as its preferred route to manage defined benefit (DB) liabilities in Germany.
The approach “is very interesting because it gives a route to settlement” with “pretty strong legal protection for the members, and it is a growing market, because it provides a solution to a problem”, Andrew Foster, global pension director at AstraZeneca, said during an Aon webinar last week.
Foster highlighted legal protection and the limited role of insurers in Germany as key reasons for opting for a buyout, citing AstraZeneca’s recent Project Mack – the transfer of its Sofotec subsidiary’s pension liabilities to buyout boutique Funding Solutions.
In contrast to the UK, “liquidation insurance is fairly limited in Germany, and insurers might not be interested in the business, or they might be very slow in actually engaging, [and] you need an alternative solution to manage [DB assets] internally”, he said.
Buyouts in Germany are “a lot more cost-effective” than insurer-led solutions, Foster added. Multiple layers of protection, including funding and regulatory safeguards, were key considerations when offloading Sofotec’s pension assets.
For Project Mack, which lasted 18 months, AstraZeneca ruled out consolidating its German plans, a step Foster described as impractical, while noting that consolidation is easier in the UK.
Assets were instead moved to a contractual trust arrangement (CTA), overseen by an independent trustee, with restrictions on how Funding Solutions could access, invest, and extract the assets.
“We are keen to put some restriction around liquidity, around the kinds of assets they could use, so we put some limits around the investment strategy, for example, how much they could assign to illiquid assets, private equity, private debt. It is mainly a liquid investment strategy,” Foster said.
Buyouts are increasingly seen by corporates in Germany as an effective way to transfer pension liabilities. Uptake is expected to rise following UBS’s transfer of several Credit Suisse entities’ liabilities to Deutsche Betriebsrente, one of the largest deals in Germany this year.
Both SMEs and large foreign corporates are now exploring buyout options with consultancies and asset managers.
AstraZeneca’s German liabilities total around €350m, spread across 10-12 plans due to consolidation challenges, a scenario mirrored at other corporates, Foster said. The company’s wider pension portfolio includes €10bn in defined benefit liabilities and over €20bn in assets, including defined contribution schemes.
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