L&G completes £400m de-risking deal with its own pension scheme

Legal & General (L&G) has completed a £400m Assured Payment Policy (APP) de-risking transaction with the L&G Group UK Senior Pension Scheme.

The deal secures the benefits of around 200 deferred members and 385 pensioner members.

This is L&G’s second APP transaction and its largest, following its previous £250m APP deal with the AIB Group UK Pension Scheme in late 2019.

The scheme trustee was advised on the deal by LCP, Redington, Gowling WLG and Premier Pensions. Legal advice was provided to L&G by Clifford Chance.

L&G Retirement Institutional, head of client solutions, Frankie Borrell, “We are delighted to have delivered improved certainty for the trustees and members of our L&G Group UK Senior Pension Scheme. We look forward to working with the trustee in the years ahead as they progress towards their ultimate goal of full pension scheme buyout.

“Our innovative APP solution allows pension schemes to lock down investment and inflation risk on attractive terms, with the ability to then add longevity and wider demographic risk protection in the future through conversion to a bulk annuity.”

An APP is a de-risking solution offered by L&G that is similar to a buy-in but does not vary with longevity risk or other demographic experience.

L&G said that this type of deal may typically see a price difference to bulk annuities of around 15-20 per cent for deferred members, while this saving is reduced pensioner members.

The firm described an APP as a “partial insurance”, in that it locks down investment risk now, with a structure for adding the remaining pension-related risks in the future, and “an investment”, in that it allows a scheme to “build its own bond” with tailored inflation coverage and no exposure to market and investment risk.

An APP’s fixed or inflation-linked pre-agreed payments are designed to match all or some of a scheme’s liabilities.

The trustee pays an upfront premium, as with a bulk annuity, with a payment schedule agreed at the outset.

Additionally, APPs can be structured to allow for conversion to buy-in or buyout.

Redington senior vice president, Beth Dunmall, added: “We’re delighted to see the L&G Group UK Senior Pension Scheme achieve this £400m APP.

"Having worked closely with the scheme over recent years on its investment strategy and to execute a number of strategic de-risking decisions, this latest transaction was a logical next step in the overall journey to meeting its funding objectives.
“Following a rigorous assessment of an assured payment policy against other potential options, we were able to work quickly and efficiently to secure an attractive price lock and transition timetable, and achieve a deal that would provide the optimal outcome for members.”

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