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Case study: Corporate Sole Trustee innovation to transact a £380m pensioner only buy-in (Pensions)

Background

We act as CST for a multi-scheme arrangement totalling over £5bn in assets for a multinational company.

The main pension scheme has been progressing through its journey plan and we began setting out a bulk annuity project to secure a cohort of pensioner only benefits with estimated liabilities of c£380m.

As we were making the final preparations, the mini budget was announced and unprecedented market conditions followed.

How we innovated

Following the impact of the mini budget on the market and ultimately the Scheme, we no longer had sufficient collateral to comfortably secure the full £380m in one go. We discussed and agreed that splitting the cohort of members in half would enable us to some members benefits right away.

During the process of securing the first tranche (transaction took place in October 2022), we began discussions with the insurer as to how to secure the 2nd tranche of members without the required collateral.

We convinced the insurer to work out an arrangement with their linked bank. This resulted in an innovative, ground breaking transaction with the bank lending the scheme the money to provide the liquidity whilst we worked on selling off some of the scheme’s illiquid assets at an attractively low interest rate.

How this benefitted both Sponsor and Members

The process was a success and we insured the second tranche of member benefits just before Christmas 2022. We kept the price lock on throughout and the pricing was very attractive.

The sponsoring employer was very happy with the result and acknowledged that this scenario would have been very difficult to achieve with a traditional board as there were lots of meetings with advisors, the insurer and the bank as well as with the schemes LDI manager to both respond to the gilts crisis and keep the buy-in going.  It was evident to the employer that the robustness and efficiencies around the decision making process that are a central part to our approach to CST appointments, yielded results that just wouldn’t have been possible with a traditional trustee board.