'First of its kind' capital-backed journey plan transaction completed by UK scheme

A ‘first of its kind’ transaction by a UK pension scheme to secure member benefits using capital provided by a third party investor was completed last month.

The structure of the 'capital-backed journey plan' saw capital "locked in" alongside scheme assets from the outset, allowing scheme members to benefit from an additional layer of security in addition to the existing sponsor covenant.

A future date for the buyout of benefits was also agreed at the outset, with the assets then invested to target the cost of buyout at the agreed date and provide a suitable return on capital.

This allows the unnamed scheme to draw down cash as needed to pay benefits until the buyout is achieved, with interest rate and inflation related risks hedged out in full during the period.

The new structure is expected to allow sponsors to give “undivided attention” to their business, while trustees are able to deliver “enhanced security for member benefits” thanks to the external capital.

It is also expected to give both sponsors and trustees greater "clarity and confidence" at the start of their journey to buyout, as to the potential cost and timing for a transaction.

The transaction was led by Aspinall Capital Partners (ACP) on behalf of Portunes Capital Ltd, which was the investment vehicle for the transaction.

Both firms were advised throughout the process by PricewaterhouseCooper (PwC), in addition to Travers Smith for corporate and financial aspects of the transaction.

Commenting on the deal, 2020 Trustees founder and chair of the scheme, Antony Miller, added: “I’m delighted that we have been able to work with ACP to agree and implement this innovative, ‘first of its kind’, approach to improve security for pension scheme members, whilst simultaneously alleviating the burden on sponsors and contributing to the wider economy.

“This is precisely where forward-thinking professional trustees can make a lasting difference.

“Alongside the consolidation vehicles, the Capital-Backed Journey Plan answers the government call for pensions innovation and provides the market with a real solution that is sorely needed, especially in the current climate.

“It also shows that these types of capital-backed structures can be implemented quickly and at relatively low cost."

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