Rothesay Life, the specialist insurer of defined benefit pension schemes, has agreed to a £4.7 billion bulk annuity insurance buy-out of the pension scheme of telent, the UK radio, telecommunication, and internet systems installation and services provider.
The deal, which is the largest full scheme buy-out ever undertaken in the UK, provides security for the scheme’s approximately 39,000 members, consisting of around 28,000 pensioners and 11,000 deferred pensioners.
The buy-out is expected to be completed by the end of 2022, but will be preceded by a buy-in that will see the transfer of the scheme’s current assets to Rothesay Life in return for an insurance policy that will fund the continued payment of members’ benefits.
During the buy-out phase of the transaction, pensioners will receive individual pension contracts or annuities with Rothesay Life, who will then take responsibility for paying members their benefits.
All of the current terms and benefits will be replicated for all members, Rothesay Life assured, both ‘in pension’ and ‘deferred’.
Established in 2007, Rothesay Life is one of the largest specialist annuity providers in the UK market, with £42 billion of assets under management prior to this transaction.
The company currently insures the pensions of over 770,000 individuals, paying a total of £1.9 billion in pension benefits each year.
Rothesay Life was advised by Gowling WLG on this deal, while the Trustee Board of the telent pension scheme was advised by Aon and CMS.
“From our very first meeting with telent, the Trustee and Aon they could not have been clearer as to what was required for the buy-out to take place,” said Sammy Cooper-Smith, Business Development at Rothesay Life. “This direct articulation allowed us to focus our resources and attention to meet these requirements and ensure the completion of the largest full scheme buy-out ever undertaken in the UK.
“At every stage of the process all parties have worked constructively to achieve this landmark settlement and we are delighted to be providing a secure, long-term home for the 39,000 GEC Plan pensions,” he continued.
“Our robust approach to risk management and the capital support from our shareholders allows us to give Trustees of large schemes confidence in our execution capability and continues to attract new clients. We have grown to become the UK’s largest specialist annuity provider because the solutions we offer clients leave them free to invest in the future of their businesses, while securing the payment of all their pension promises.”
Heather Green, CFO of telent, also commented: “The Trustee of the GEC1972 Plan has done a fantastic job to eliminate the significant funding deficit that existed in the Plan only 10 years ago and get the scheme to a position where it can benefit from the hugely more secure future that this transaction provides.
“It is great news for all members of the scheme. I would like to pay tribute to all the current and former trustee directors and members of the in-house team who have worked so hard to get the scheme into this enviable position,” Green remarked.
“For telent, being the sponsor of a scheme many times larger than our business was not ideal. We can now look forward to focusing more of our investment in our already successful technology solutions business.”
Brian Duffin, Chairman of the Trustee Board, further stated: “During its history, from its foundation up to this announcement, the GEC Plan has met its commitments to its members despite many changes and challenges. Over five years ago the Trustee decided that the best way to provide maximum security for our members in the long term would be to achieve buy-out.”
He went on: “Thanks to support from our sponsor telent, and to an innovative investment strategy based on credit assets, we are now close to achieving our target. Our negotiations with Rothesay Life have been professional and constructive, and we will be working closely with them to take the final step to implement buy-out.”
“We believe our members will receive good service from Rothesay Life in future as well as optimal security in the payment of their benefit entitlements.”
Martin Bird, Senior Partner & Head of Risk Settlement at Aon, added: “We are extremely pleased to have supported the Trustee and telent achieve such a positive outcome for members. 2019 has been the busiest year on record for bulk annuities and the ability to stand out from the crowd continues to be the key component of capturing the best insurance pricing and terms. In this case, exemplary governance arrangements combined with a flexible and nimble project group proved invaluable in delivering such a successful outcome.”
And finally, John Baines, partner at Aon, said: “We are very proud to have advised on the two largest bulk annuity transactions ever, both of which have occurred during 2019. This reflects the considerable evolution of the bulk annuity market since the introduction of Solvency II in 2016, with even the very largest schemes now being in a position to access buy-in and buyout structures. However, this does require extremely careful planning, strong governance and the ability to move at speed when the time is right.”