Northern Gas Networks Pension Scheme has agreed a a £385m (€415m) buy-in transaction with Legal & General Assurance Society Limited, securing the pension benefits of more than 600 retirees.
Northern Gas Networks (NGN) is the gas distributor for the North of England, transporting gas to 2.7 million homes and businesses across the North East, most of Yorkshire and northern Cumbria.
The scheme is an existing client of Legal & General, with Legal & General Investment Management (LGIM) having managed a proportion of the fund’s assets since the scheme was established in 2005.
This transaction is the scheme’s first buy-in policy and covers around two thirds of its members, it was announced.
A statement said that by “being prepared, and able to move quickly, the trustee and NGN were able to take advantage of favourable market conditions to establish the buy-in”.
Rachel Cutts, origination and execution director at Legal & General Retirement Institutional, said:“This transaction demonstrates that by having a clear objective and flexible timescales, trustees can move quickly and secure their members’ benefits when favourable pricing is available.”
Catherine Edmondson, trustee chair, added that the deal was an “important step to reduce risk in the scheme and increase member security”.
Aon acted as broker for the transaction.
UK pension risk transfer market to reach £60bn in 2021, says Mercer
Mercer is forecasting continued growth in risk transfers during next year with up to £60bn (€65.2bn) of bulk annuities, longevity swaps and new risk transfer solutions projected.
The consultancy expects the increase to be driven by several factors, including better affordability as more schemes mature, increased demand from schemes and sponsors following the pandemic and innovation to meet the challenges faced by defined benefit (DB) pension schemes.
Andrew Ward, UK head of risk transfer and DB journey planning at Mercer, said: “We predict that 2021 will be the busiest year on record with the return of ‘mega’ buy-in and buy-out deals and longevity swaps.”
He noted that, given the growing range of risk transfer solutions available to trustees and sponsors, “it is more important than ever that advisers provide clear guidance to help them identify the right path to achieve the best outcomes for all stakeholders”.
He also mentioned that despite the pandemic, 2020 has been the busiest ever for risk transfer to insurers and reinsurers, with approximately £50bn of transactions, including £30bn of bulk annuities.
“In a year like never before, risk transfer has remained high on the agenda for trustees and sponsors. The big winners have been those well-prepared schemes that have made volatility their friend and thus benefited from pricing opportunities created by market volatility during the pandemic,” Ward said.
Smaller deals have also hit the headlines in 2020, in the absence of mega deals. For instance, last month the £3bn (€3.3bn) Smiths Industries Pension Scheme secured a fourth bulk annuity, a £146m buy-in with Canada Life.
The ICI Pension Fund completed a £70m (€76m) buy-in with Legal & General Assurance Society in May, its 17th such de-risking deal.
Ruth Ward, principal at Mercer, said: “Streamlined processes for both insurers’ and advisers’ will drive sustained demand for smaller buy-out transactions into 2021, despite the anticipated return of mega deals.”
She said Mercer has also helped small schemes under £5m gain more visibility with insurers and successfully capture price opportunities to achieve their buy-out goals.
“For those further away from their end goal, a broad spectrum of consolidation options including professional trusteeship, fiduciary management and DB master trusts can improve smaller scheme governance and member outcomes,” she said.
Ward concluded: “Latent demand for risk transfer continues to grow strongly with over £2 trillion of DB liabilities maturing over time. Whether it is via risk transfer exercises or simply payments to pensioners, the total DB uninsured universe in 2030 will be around half the size it is today.”
She said that not every scheme would or should buy out and not every scheme should look in detail at longevity swaps, consolidation or member options.
“However, every trustee and every sponsor should be aware of these options, alongside other alternatives such as LDI, CDI, fiduciary management and DB Master Trusts, in order to devise the right long-term strategy for their plan,” Ward said.