TRW Automotive has removed £2.5bn of pension scheme risk in an innovative deal with Legal & General, comprising a partial buyout and a series of de-risking exercises.
The deal, the largest buyout in the UK to date, has seen TRW insure more than 22,000 of its members through a combination of a pension buyout for 16,000 pensioners and a variety of concurrent pension risk management exercises.
These exercises included a pension increase exchange (PIE) taken up by 5500 members, an enhanced transfer value exercise (ETV) covering 9000 members, winding-up lump sums, and equalisation of guaranteed minimum pensions (GMP).
TRW Automotive trustee chairman Neil Marchuk said: “This buyout with Legal & General materially de-risks our remaining pension obligations and provides security to members who are insured. Legal & General worked closely with us and our advisers to tailor the arrangement to meet the scheme’s needs and we are very pleased with the insurer’s expertise, agility, pragmatism and level of service, all of which contributed to the success of this buyout.”
Mercer was one of the trustee advisers on the deal. Financial Strategy Group senior partner Adrian Hartshorn explained: “Prior to the buyout, Mercer worked with TRW to manage the risks posed by deferred members – people who no longer pay into a plan but don’t yet take their pension benefits. We conducted an enhanced transfer value exercise covering 9000 members. Additionally, members with small pots were also offered a lump sum in lieu of further plan benefits and as part of the PIE exercise, some guaranteed minimum pensions were equalised and converted to non-GMPs.
“All in all, this was a complex project, but the resulting cost-effective reduction in the scheme’s liabilities has demonstrated the value of the work, which has taken most of the year to complete.”
According to Mercer, TRW employed an investment strategy following the 2008 downturn which resulted in a gradual improvement in the funding level and enabled it to embark on the transaction.
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