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Barnett Waddingham
0333 11 11 222

Innovative buy-out

Published by Gavin Markham on

We carried out an innovative buy-out for part of the Lloyd’s Superannuation Fund (LSF), a £500m multi-employer defined benefit scheme associated with the Lloyd’s of London insurance market.

The second largest participating employer exited the LSF triggering a 'section 75' debt on that employer.  The LSF Trustee decided to use part of the debt proceeds to secure a £40m bulk annuity contract with Pension Insurance Corporation to insure the parented liabilities of the exiting employer.  The LSF Trustee wanted as much certainty as possible around the insurance cost.

Barnett Waddingham sought from insurers an innovative mechanism to fix the premium for the bulk annuity contract at the crystallisation date of the section 75 debt, with the fixed price period providing sufficient time for the section 75 debt to be determined and paid.

We advised the scheme on the selection of a bulk annuity insurer and the most appropriate transaction structure using a swaption to protect against any adverse price movements.

Barnett Waddingham Pension Scheme Buy-out Innovation

This graph demonstrates the volatility of the market in the period leading up to the transaction and how the fixed premium option was able to remove the Trustee’s exposure to this volatility during the calculation and payment period.

“The LSF Trustee had clear objectives for this exercise, particularly around minimising risk. Once the exiting employer agreed to work with the Trustee on this, we were pleased that the hard work and innovative approaches of Barnett Waddingham and Pension Insurance Corporation meant we were able to agree a fixed premium mechanism within the short timescale available”
Eric Stobart, Chairman
Lloyd’s Superannuation Fund

About the authors

  • Gavin Markham

    Gavin is Head of Bulk Annuity consulting for Barnett Waddingham. He also provides advice to a range of corporate clients on DB pension issues including scheme funding, benefit design, risk reduction exercises, M&A and accounting matters.

    View Biography

  • Nick Griggs

    Nick advises a range of UK businesses on DB pension issues including risk reduction exercises, scheme funding, pension benefit design and accounting disclosures. He also acts as Scheme Actuary to a number of clients.

    View Biography

  • Andrew Vaughan

    Andrew advises a range of UK and international businesses on DB pension issues including pension scheme funding, risk reduction exercises, pension benefit design, M&A transactions and accounting disclosures.

    View Biography

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