The Plan’s strong funding position has allowed the Trustee to follow a strategy of reducing risk by aligning investments more closely with the pension benefits payable to members. This buy-in transfers further longevity risk to Legal & General, reducing the pension risks being underwritten by Pearson and provides additional security for members.
The combined buy-in policies:
Will make monthly payments to the Plan equal to the future pensions for approximately 50% of the Plan’s liabilities.
Reduce the risk that Pearson will be required to contribute additional cash to the Plan in future, as the buy-ins transfer a significant proportion of pension risk to the insurers.
Contain features to provide additional security for the Plan beyond the protections available as standard under the insurance regime.
The buy-in agreements in 2017 allowed for future buy-in transactions to be executed using the same terms so that the Trustee could move quickly to take advantage of attractive insurance contract pricing, as was the case in this instance.
The buy-ins are held as investments of the Plan and members will see no change to how their pensions are provided.
LCP was lead adviser to the Trustee on the buy-in transactions and legal advice was provided to the Trustee by Linklaters.
Clive Wellsteed, partner at LCP and lead adviser to the Trustee:“The Pearson Plan conducted the largest buy-ins of 2017 at £1.2bn and set up umbrella contract structures to allow quick follow on transactions that benefit from the same attractive terms as the initial buy-ins.
“The ease of execution under the umbrella contract meant a win-win for the Trustee, who was able to lock in attractive pricing relative to the very latest longevity trends, and L&G who got off to a strong start to 2019. The Trustee was able to complete the transaction about two weeks after receiving pricing.”
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