How Evonik's Schemes
completed a £550m full buy-in

Case studies

In December 2020 the Trustee of Evonik’s four UK pension schemes completed a £550m full buy-in with Legal & General. This transaction, which required complex structuring, would not have been achieved without careful preparation and planning as the schemes neared buy-out.

The background

The Trustee had an established long-term objective of insuring all benefits. In 2018 LCP was appointed as a strategic adviser with the goal of helping the Trustee navigate the journey to insuring all four schemes. After considering the estimated buy-out position and establishing how far off buy-out the four schemes were, we helped the trustees design a journey to buy-out incorporating the contributions which the sponsoring employer had indicated would be available to facilitate this journey. Under the plan, it was expected that all four schemes could be fully insured in 2021.

The Trustee took steps to increase certainty of reaching buy-out, such as de-risking assets and aligning the investment strategy to assets that provided a better hedge to insurer pricing.

What we did

As part of the preparation process, a joint working group was established which included key representatives from the Company, to ensure an efficient and robust governance structure. The Trustee progressed a number of preparatory tasks with the intention that these would increase insurer engagement when the schemes approached the market. An example of these actions include the following:

  • The schemes have some “non-standard” benefits, such as a cash balance section, and so the preparation work involved deciding the approach for these liabilities.
  • The four pension schemes would need to be merged to facilitate the transaction and so work commenced on a potential merger so that it could quickly take place if required.

The outcome

The Trustee monitored the position over time, and in 2020 following some positive experience, including asset outperformance, the Trustee was in touching distance of buy-out.

The Trustee decided to move quickly to lock into this favourable position.

After careful consideration the Trustee decided the best way to quickly insure the schemes was to approach a sole insurer and work quickly and collaboratively. As a result of the preparation, the Trustee was able to promptly seek pricing from Legal & General in October 2020. This premium was locked to the assets held in the scheme providing the Trustee with price certainty whilst they merged the schemes together, which was only possible due to the asset de-risking decisions made on the journey. The merger and buy-in then took place in December 2020.

We appointed LCP as our specialist de-risking adviser. They helped the Trustee to design a tailored journey plan for our four schemes and as a result we were able to achieve a fantastic outcome for the members.

Colin Marsh, Chair of Trustee

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