Legal & General has secured a £230 million medically underwritten buy-in with the Kingfisher Pension Scheme, covering 149 specific scheme members from Kingfisher’s c. £3bn pension scheme. The transaction incorporated several innovative features including a ‘top slice’ approach, a ‘gilt lock solution’ and pre-agreed Pathway legal contracts. This is the largest medically underwritten bulk annuity arrangement to date in the UK.
Clive Gilchrist, Chair of the Trustee for Kingfisher Pension Scheme, said: “This is another important step for the Kingfisher Pension Scheme on its journey towards a target of self-sufficiency by 2030. The annuity provides a further improvement to the financial security of the Scheme for all members”.
‘Top slicing’ refers to a bulk annuity transaction being carried out in respect of a smaller number of members representing a larger proportion of the value of the liabilities within a particular pension scheme. Having additional medical data in respect of these members allows the insurer to form a more robust view on life expectancy and to price the risk with more certainty.
Under a ‘gilt lock solution’ insurance pricing moves in line with a specified portfolio of gilts over the contracting period. This solution helps provide transparency and certainty to the scheme during the implementation process.
Cheryl Agius, Head of Strategic Business, Pension Risk Transfer, at Legal & General said: “We are delighted to have been selected to work with the Kingfisher Pension Scheme and Aon on this record-breaking arrangement. Our wealth of experience and financial strength means we are ideally placed to help pension schemes achieve their de-risking goals and better protect their members’ benefits.
Many companies are weighed down by pension deficits and affordability is a key consideration for schemes and sponsoring companies when transferring risk to an insurance company. We believe the growth in the top slicing approach is set to continue and for many schemes, will be the first step on a journey to full buyout. Medically underwritten bulk annuities were traditionally viewed as a solution for smaller schemes and the emergence of top slicing helps open up medical underwriting to medium and larger schemes as well.”
John Baines, Principal Consultant in Aon Hewitt’s Risk Settlement Group and lead advisor on the transaction, said: "Using our AHEAD medical data platform, and Kingfisher Pension Scheme’s strong relationship with their members, the response rate for health and lifestyle data was over 80%, giving insurers much more certainty.
This helped the Trustees to achieve a materially better price than would typically be available in the traditional bulk annuity market, removing some of the most significant risks within the pensioner population.
We continue to see strong demand from UK pension trustees and sponsors to make use of bulk annuity solutions, either as part of a gradual exit strategy or on a partial basis as part of a better matched investment strategy. Greater competition and innovation across the market, such as use of health data, is providing schemes with more opportunities to remove risk at affordable prices."
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