£3.5bn staged buy-ins to achieve full buy-out

Case studies

Phased de-risking leading to full buy-out 

We completed an initial buy-in with the Philips Pension Fund, followed by another two buy-ins in 2014 which helped prepare them for a full buy-out in November 2015.

The background 

  • £3.5bn UK pension plan with c30,000 members
  • Mature plan: two thirds of liabilities in payment
  • Nearly fully hedged against interest rates and inflation
  • Complex benefit structure: long history with numerous amendments to trust deed and rules
  • Three Trustee-led buy-ins completed in 2013/2014 as stepping stones towards full buy-out
  • In September 2014, Philips announced a demerger to separate its lighting division and its healthcare and consumer lifestyle division, due for completion in 2016
  • Proposal from Philips in 2015 to make a substantial cash injection to facilitate a full buy-out with Pension Insurance Corporation 

Our solution 

Our specialist de-risking team helped the Trustees to be a “go-to” pension plan. This meant they were ideally positioned to seize pricing opportunities on strong terms through preparation, experience and relationships with insurers. 

Initial review 

  • Decision to use buy-ins rather than longevity swaps as part of the broader de-risking plan (driven by investment strategy and time horizon)
  • Identified optimal size and types of transactions
  • Aligned investment strategy to a portfolio an insurer would wish to receive 

Residual risks cover 

Initial buy-ins included carefully structured protections: 

  • Protect members from any errors in data and benefit specification
  • Suitable approach for GMP equalisation
  • Ensure historical discretions and augmentations protected 

The results 

Buy-ins completed 

  • August 2013 - £484m buy-in with Rothesay Life for a 'large pension' pensioner subset
  • June 2014 - £300m buy-in with Prudential for a subset of younger pensioners
  • September 2014 - £310m buy-in with Prudential for a cross section of pensioners
  • November 2015 - £2.4bn final buy-in 

Final transaction dove-tailed with the initial transactions to provide comprehensive risk removal for the Trustees and Philips. 

In late 2015, we helped the Trustee respond to the buy-out proposal. Liabilities were fully settled following a £225m (approximate) corporate contribution. 

LCP worked with the Trustees to set a high bar for the first three buy-ins and helped us to actively engage with the full buy-out proposal from Philips to achieve the right outcome for our members

David Jordan - Chairman of Trustees