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West Midlands transport fund completes £270m buy-in

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  • West Midlands transport fund completes £270m buy-in

UK - A public sector scheme administered by West Midlands Pension Fund has completed a £270m (€330m) bulk annuity buy-in, the first for a public sector scheme.

The West Midlands Integrated Transport Authority (WMITA) pension fund - part of public transport group Centro - first put the buy-in out to tender in October last year, estimating it the bulk annuity deal would cost £230m.

However, the buy-in, on which Mercer and Squire Saunders advised, will see Prudential take on £272m of risk.

The scheme's actuary first raised the possibility of such a transaction in the 2010 triennial valuation, at which point the scheme was 84% funded, reporting a £453m deficit compared with only £382m in assets.

Geik Drever, who succeeded Brian Bailey as director of pensions at the Wolverhampton City Council administered West Midlands Pension Fund at the beginning of the month, said the transaction marked an important step in WMITA's risk management strategy, insuring half of all current liabilities.

"It has protected the fund and the sponsor against the volatility of investment markets and any unanticipated increases in life expectancy of the pensioners," he added.

Fund actuary Paul Middleman added that the transaction was breaking ground in reducing the risk for local authorities.

"Now that one fund has taken the plunge, we could see this becoming a viable option for funds when dealing with legacy liabilities as part of the governance around their risk management strategy," he said.

As the scheme is a multi-employer fund, permission for the transaction was required from coach company National Express, as well as Rotala - which recently acquired Preston Bus Company from previous owner Stagecoach.

Clifford Sims, partner at law firm Squire Saunders, noted the "great depth of transparency" needed for the proceedings due to the scheme's public sector status.

He noted that this was the first time a bulk annuity transfer had been conducted for a local authority scheme.

He added: "Another feature was that the price was determined by an electronic auction process enabling the price to be settled in a matter of hours."

Akash Rooprai, principal at Mercer and broker for the deal, said working closely with insurance companies allowed the consultancy to understand the needs of the public procurement process, while Mercer's previous experience with private sector transactions allowed them to ensure the best means of competition.

The buy-in was competed in less than six months, with the tender being released in October following the decision to proceed in late September.

WMITA's pension fund committee then made the final decision on the award of the contract in a meeting in late March.

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