The OBSPS is expected to exit its Pension Protection Fund ("PPF") assessment period and secure a full buyout next year, having agreed a £2 billion pension insurance buy-in with insurer, Pension Insurance Corporation plc ("PIC").
The deal completed on 8 October 2020. The buy-in secures the liabilities of over 30,000 members at or above PPF levels of compensation.
The OBSPS entered a PPF assessment period on 29 March 2018, as a result of the restructuring of the UK operations of Tata Steel UK Limited agreed with the Pensions Regulator and the PPF.
During the Scheme's PPF assessment period, it became apparent that it might be possible to buy-out members' benefits at or above PPF levels of compensation.
A significant amount of work has been undertaken investigating this possibility by the trustee of the OBSPS and its advisers. The buy-in should ultimately result in a better outcome for members than they might otherwise have been expecting.
Members were first informed about the possibility of a buy-out in April 2020. Members are being directly notified about this significant step taken with PIC and what it will mean for them.
Whilst all members' benefits have now been secured at or above their current PPF levels of compensation with PIC, the exact outcome for each member will not be known until the buy-out occurs. This is expected to happen towards the end of 2021, as further work is still required before the OBSPS can be fully transferred to PIC. During this period, the Scheme will remain within its PPF assessment period and continue to be protected by the PPF.
Open Trustees Limited has been the trustee of the OBSPS since 29 March 2018. It is an independent entity but is wholly owned by international law firm, Osborne Clarke LLP. The transaction was led by Barnett Waddingham.
"This is a significant step in what has been a long journey for OBSPS members, who now have the certainty that their benefits have been secured with an insurer on very favourable pricing terms in a turbulent market."
Jonathan Hazlett, Managing Director of Open Trustees said: "When we were first appointed as trustee of the OBSPS, we anticipated that the PPF would assume responsibility for OBSPS. However, better than expected funding levels coupled with the adoption of scheme-specific mortality assumptions have meant that a wind-up outside of the PPF became possible."
"We are delighted to have entered into this buy-in policy with PIC. This transaction will eventually see OBSPS members receive benefits either at the same PPF level as those currently provided or, for many members, an uplift above that amount. It has been difficult for the OBSPS members over the last few years. Whilst the PPF provides a valuable safety net and a significant level of protection, many members will now receive higher benefits than they might otherwise have expected had the Scheme entered the PPF. OBSPS members can take comfort that their benefits will be looked after by an insurer, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority, as well as being committed to the highest levels of customer service."
Rosie Fantom, Partner at Barnett Waddingham, said: "Barnett Waddingham has worked closely with Open Trustees to secure the best possible outcome for the OBSPS members. Identifying the OBSPS as a potential candidate for wind-up outside the PPF was the first step, followed by putting in place a strategy to manage the asset risk whilst the scheme prepared for the transaction.
“This is a significant step in what has been a long journey for OBSPS members, who now have the certainty that their benefits have been secured with an insurer on very favourable pricing terms in a turbulent market. Rigorous work carried out over the last two years allowed the scheme to take full advantage of bulk annuity pricing.”
Uzma Nazir, Head of Origination Structuring at PIC, said: “This is a significant transaction, guaranteeing the benefits of the more than 30,000 pension scheme members who have faced a long period of uncertainty about the level of their benefits, and providing many with an uplift over PPF levels. We are delighted to have been able to work so closely with the Trustee and Barnett Waddingham and ultimately deliver what was required in the biggest and most significant transaction of the year.”
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