Pension Insurance Corporation (PIC), the specialist insurer of defined benefit pension funds, has entered into a bulk annuity buy-in agreement with UK pest control service Rentokil Initial plc, concerning a pension scheme with liabilities of £1.5 billion.
The agreement will provide security for Rentokil Initial 2015 Pension Scheme’s 14,200 members by hedging against longevity, interest rate and inflation risks.
The parties agreed to the transaction in anticipation of a full buy-out of the scheme in 2020, which PIC expects to be one of the largest full buy-outs ever undertaken in the UK.
The buy-out will completely extinguish all future pension liabilities from the Rentokil’s balance sheet and the associated accounting surplus, removing the need for any company cash payments.
The deal will also see PIC provide members of the scheme with individual annuity policies, with the insurer assuming financial responsibility for paying their benefits in full.
By the end of H1 2018, PIC had insured a total of 162,800 pension scheme members and had £27.9 billion in financial investments, which it accumulated through buy-outs and buy-ins with UK defined benefit pension schemes.
“We are proud to have secured this buy-in, which will guarantee the benefits of the 14,200 members of the pension scheme,” said Mitul Magudia, Head of Business Development at PIC.
“This is PIC’s largest transaction in 2018 and will be one of the largest full buy-outs ever undertaken in the UK,” he continued. “We already have a full pipeline of new business transactions for 2019 and we expect to see many more transactions of similar size and nature in the future.”
Andy Ransom, Chief Executive of Rentokil Initial plc, also commented: “This transaction is a fantastic outcome for our pensioners, the Company and our shareholders. We have supported the Scheme over many decades and over that period made significant cash contributions to remedy a deficit that has existed between the Scheme’s assets and liabilities.
“That funding, combined with excellent stewardship by the Scheme’s trustees, and the high quality support of the advisers to the Company and the Trustee, has resulted in a very positive situation whereby the Scheme can now be transferred to an A+ rated insurance company, PIC. This action de-risks the Scheme for the benefit of members and the Company,” Ransom explained.
“While many other companies will have to continue investing heavily into their pension schemes for years to come, we can focus our future investments on delivering profitable growth.”
Chris Pearce, Chairman of the Trustee of Rentokil’s pension scheme, added: “This is great news for members. After many years of support from Rentokil Initial and careful management with Aon (our Actuary) and Willis Towers Watson (our investment adviser) we can now secure our members’ benefits through Pension Insurance Corporation (PIC), a company which has strong financial credentials and a track record of excellent customer service.
“I want to thank our advisers, Aon, and our lawyers, Linklaters, for their help in arranging a strong agreement with PIC which will continue the excellent pensions our members enjoy.”
Finally, John Baines, Partner at Aon, stated: “We are proud to have helped Rentokil Initial capture very attractive pricing during the busiest ever year in the bulk annuity market, at a time when they were surrounded by other large transactions in the market. The deal was made possible by reacting quickly to wider market developments in order to bring together an attractively priced, innovative and bespoke agreement.”
