The Cobham Pension Plan has concluded a £530m (€615m) bulk purchase annuity (BPA) transaction with Standard Life, covering around 3,000 members.

This PBA arrangement, combined with a similar bulk annuity purchase in 2013, secures the benefits of all members of the pension plan, it was announced.

LCP acted as the lead adviser to the trustees for this transaction, with additional support from AR Pensions and Wellbeing Consulting (ARPW), while legal advice was provided by Squire Patton Boggs and Sacker & Partners. Standard Life were advised by CMS Cameron McKenna Nabarro Olswang.

Sven Lewis, chief financial officer at Cobham, said: “This announcement is very good news and ensures that the benefits of all the members of the plan have now been secured. Since Advent’s acquisition of Cobham nearly three years ago, we have had a clear plan to de-risk our pension scheme, which has included over £150m of increased cash investment from Advent into the plan. The deal with Standard Life completes that process and delivers long-term security for our pension fund members.”

DB deficits could be a thing of the past

Dividends paid by FTSE350 firms with a defined benefit (DB) pension scheme rebounded from the COVID-19 crash last year, bouncing to £70.7bn in 2021. Since then, the dividend recovery has continued its ascent, with Link Group Dividend Monitor expecting full year dividends paid by the main market to hit £97.4bn this year.

The pattern will be the same for those FTSE350s with a DB scheme, though a full-year figure is not yet available, recent research by Barnett Waddingham revealed.

Meanwhile, the aggregate pension deficit for those DB schemes has also dramatically improved, from £185bn in December 2021 to around £28bn at 30 September 2022. That is, the total estimated buyout liabilities are around £597bn, while the assets held total £569bn.

DB schemes continue to expose companies to a significant level of risk; in December 2021, 16 months of dividend payments would have removed this risk forever. The improvement in DB scheme funding positions now puts that figure closer to 3-6 months, the research showed.

Simon Taylor, partner at Barnett Waddingham, said: “While this may be more of a thought experiment than a plan, it puts into perspective the scale of DB scheme liabilities for companies. For many, only a small proportion of dividend payments would need to be reallocated to bring schemes to buyout.”

He added: “Given the recent volatility in the pensions market, companies are likely to want to get schemes off their balance sheet and over to an insurer or consolidator as soon as possible. This would enable companies to focus on their day job rather than managing legacy pension risk. And its likely shareholders would be amendable too; only a brief reduction in dividends to remove exposure to DB pension risk forever.”

£1.3trn wiped off value of UK bonds since start of 2022

More than £1.3trn (€1.5bn) has been wiped off the value of UK bonds since the start of 2022 following a major sell-off across bond markets, research by digital asset manager Collidr shows.

The research shows that £882.6bn has been wiped off the value of Gilts and index-linked Gilts, which have fallen 26.4% and 36.2%, respectively, in the year to date. The value of UK corporate bonds has also fallen by £514.5bn since the beginning of the year.

Colin Leggett, investment director at Collidr, said: “The unprecedented meltdown in bonds is not just causing issues for pension funds with exposure to liability-driven investment (LDI) strategies. The fall is also wrecking the returns for any investor with a large exposure to UK bonds.”

He noted that considering bonds have been a cornerstone of many “conservatively” run pension fund strategies, like the typical 60/40, many fund managers are “suffering in this unprecedented unwind of UK bond positions”, he said. 

“Few individual fund managers have actually experienced a fall in the bond markets on this scale. Many may have been caught out by the speed and aggressiveness of the sell-off and some have been slow to slash the allocation to longer duration bonds,” Leggett added. “With the on-going economic and political instability, we may still only be in the eye of the storm.”

Longer duration bonds – i.e. with lower coupons and/or longer periods to maturity – are more affected by higher inflation and rising interest rates.

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