Hospitality giant Whitbread Group has agreed a £680m (€805m) bulk purchase annuity (BPA) covering approximately 8,000 members of its pension fund with Standard Life.
The transaction is the first by Whitbread Pension Fund’s trustees, with the rationale to ”significantly reduce the risks associated with the underlying members’ benefits”.
Keith Jones, chair of Whitbread Pension Trustees, said: “This buy-in is a key stage in the [pension fund’s] de-risking journey. It helps to provide greater certainty to members about the security of their benefits and we are delighted to have completed it with Standard Life.”
Kieran Mistry, senior business development manager at Standard Life, said: “It’s exciting to support the [Whitbread trustees] in securing their first buy-in, taking risk off the table in a volatile economic environment.”
He added: “For schemes that have not yet reached buyout, pensioner buy-ins continue to offer a fantastic opportunity to lock down risk over time, and form strategic partnerships with insurers along the way.”
Standard Life has been pursuing a strategy of acquiring BPAs for some time. At the start of the year it completed a £1.8bn BPA covering around 6,600 pensioner members of the Imperial Tobacco Pension Fund, which is sponsored by Imperial Brands Plc, shortly beforec ompleting another for £1.7bn with the Gallaher Pension Scheme.
Standard Life’s Mistry explained how the deals work, not only to the benefit of the companies involved, but also to wider ESG goals.
”As part of BPA deals like this, we receive a one-off premium from the scheme and then guarantee that member benefits will be paid into the future,” he told IPE. ”This premium is invested across a broad range of assets to ensure we are able to meet the future liabilities. Given that member benefits will be paid out over decades we can afford to take a long-term view in the way we invest and make allocations to illiquid investments.”
He added: ”We aim to invest 60% of our illiquid assets in sustainable investments including in areas like renewable energy, infrastructure, affordable housing and healthcare and education. In 2021 we actually achieved 67% of illiquids in sustainable investments, equivalent to £1.3bn. This included more than £500m in affordable housing, supporting some of society’s most vulnerable people as well as over £200m into projects with a positive environmental impact, such as the provision of renewable electricity, to nearly half a million homes.”
Expected buy-in and buy-out market volumes
Separately, Hymans Robertson’s latest survey of the insurance companies that offer pension scheme buy-ins found that buy-in and buy-out market volumes were expected to be between £10bn and £12bn, respectively, in the first half of 2022.
The same insurers questioned by the pensions and financial services consultancy expected that buy-in and buy-out volumes would be close to £25bn in the second half of 2022.
That would take the total for the whole of 2022 to be around £35bn, which would be more than a 25% increase on the 2021 volumes of £27.7bn, according to the survey.
James Mullins, head of risk transfer at Hymans Robertson, said: ”The rapid growth in demand for pension schemes to insure their risks, along with improved pension scheme funding levels, attractive insurer pricing and new alternative risk transfer options, means that we expect a record breaking year for buy-ins and buy-outs in 2023. This is likely to exceed the £44bn that we saw in 2019. We also expect around £50bn a year of buy-ins and buy-outs on average over the next 10 years, in addition to longevity swaps. That means by the end of 2031, £1trn of pension scheme liabilities will have been insured, covering 5 million members’ benefits.”