SSE-affiliated schemes, the Scottish Hydro-Electric Pension Scheme (SHEPS) and the Scotia Gas Networks Pension Scheme (SGNPS) has completed a £1.2bn longevity risk hedge through two buy-ins and a longevity insurance transaction.
The two buy-ins with the Pension Insurance Corporation totalled £350m covering, comprising of c£250m SHEPS pensioner liabilities and c£100m SGNPS pensioner liabilities.
The longevity insurance covered an additional £800m of pensioner longevity risk in SHEPS. This is the first transaction to use Legal & General’s UK-based pass through structure to transfer longevity risk to the end reinsurer.
The transactions were completed within three weeks of choosing the insurer with one transaction completed within two weeks.
Hymans Robertson was the architect of the transactions and lead advisor. CMS provided legal advice to trustees for both transactions and Club Vita provided longevity analytics throughout the process. Eversheds Sutherland offered legal advice to Legal & General.
The two schemes’ trustees were able to achieve significant cost savings on the buy-in transactions by requesting quotations from insurers for both schemes at the same time.
SHEPS is the first scheme to have combined a buy-in and a longevity insurance to hedge its longevity risk. It is likely that other schemes will make similar transactions “to tailor transactions to pensions schemes’ individual circumstnaces,” Hymans Robertson commented.
Scottish Hydro-Electric Pension Scheme chair of trustees Graham Laughland, said: “I am delighted to have taken this positive step in reducing risk and improving the security of members’ benefits. Hymans Robertson’s and CMS’ advice and specialist experience in the buy-in and longevity insurance market were invaluable."
Scotia Gas Networks Pension Scheme chair of trustees Tony Fettiplace, commented: “This deal is great news for the Scheme. Reducing risk over time is an absolute priority for us and it is important to do this in the most cost effective way. Hymans Robertson’s proposal to work collaboratively with the Scottish Hydro Electric Pension Scheme worked very well to the ultimate benefit of both schemes."
Hymans Robertson lead advisor and partner Richard Wellard, added: “It was very rewarding to work with both sets of trustees and to design a package of transactions that delivered such an excellent deal. All parties have been able to achieve their objectives and SSE plc joins the increasing number of FTSE 100 companies who have reduced longevity risk exposure in their pension schemes."
Also commenting, PIC actuary Tristan Walker-Buckton said: “This was a well thought through transaction and we thoroughly enjoyed working with the respective trustees and their advisors to reach a solution which best met their mutual de-risking needs. Working closely with Hymans and CMS, the trustees were able to move from a decision to go ahead to signing the contract in one of the shortest periods that we have seen. This is an excellent example of how those pension schemes that are well prepared and well advised can achieve excellent outcomes in the bulk annuity market.”