Pension Insurance Corporation plc (PIC), the specialist insurer of defined benefit pension funds, has completed a third pension risk transfer transaction for a pension scheme sponsored by UK energy company Scottish & Southern Energy (SSE).
The deal saw PIC convert a pensioner longevity swap held by the Scottish Hydro Electric Pension Scheme (SHEPS) into a £750 million buy-in.
In 2016, PIC insured £250 million of SHEPS’s pensioner liabilities and £100 million of pensioner liabilities in the Scotia Gas Networks Pension Scheme, through two separate buy-ins.
Notably, the new transaction involves PIC restructuring and stepping into the existing longevity swap, and it underpins the buy-in from inception.
“The Trustees of SHEPS have been a valued client of ours since 2016 and we are delighted to have been able to help them further de-risk their pension liabilities,” said Tristan Walker-Buckton, Head of Pricing at PIC.
“Converting a longevity swap into a buy-in is not straightforward but it is an increasing trend,” he explained.
“It shows that trustees are keen to extend their derisking programme beyond longevity risk and into a buy-in or buyout, giving them fuller coverage and a simpler proposition to manage long-term.”
SSE has operations and investments across the UK and Ireland, and is primarily a developer, operator and owner of low-carbon energy assets and businesses, with a focus on regulated electricity networks and renewable energy.
“I am delighted that the Trustees have been able to take another step in reducing risk and improving the security of members’ benefits,” said Graham Laughland, Chairman of Trustees of SHEPS.
“This buy-in extends the insurance we have in place and provides the scheme with an income stream that matches in all material respects the pensions currently being paid,” Laughland stated. “A very smooth process from my perspective.”
During the transaction, the SHEPS Trustees were advised by Hymans Robertson and Shepherd and Wedderburn.
Richard Wellard, Partner at Hymans Robertson, commented on the deal: “It was really enjoyable working with the Trustee and SSE through this project. They have a clear set of objectives for the pension scheme and this allows us to identify when transactions will add real value in achieving those objectives.”
“Forty longevity swaps have been put in place by pension schemes and this is the fifth conversion into a buy-in,” Wellard continued.
“The process of converting a longevity swap to a buy-in is more complex than implementing a buy-in from scratch, but we expect more schemes to follow this path as they become better funded and look to lock down risk.”