The Musicians' Union Pension Fund's route to full buy-in

The 1 January 2021 actuarial valuation showed a surplus on an ongoing Scheme Funding basis, but still with a noticeable solvency deficit. Using our Illuminate software, which allowed us to consider changes in market conditions, we demonstrated to the Trustees that the solvency deficit had reduced noticeably since the valuation date. The Trustees agreed in principle that ultimately securing a bulk annuity was their preferred option to facilitate a longer-term winding-up of the Scheme, and agreed to consult the Union to ensure both parties were aiming for the same goal. After receiving the required investment advice, the Trustees significantly reduced investment risk to “lock in” the recent gains. 

After receiving Union support to investigate further, we provided our initial feasibility report to the Trustees in August 2021 highlighting that with further Union support of a manageable shortfall contribution then a bulk annuity purchase was feasible. We also noted that it could be challenging for smaller schemes to achieve traction in a busy insurance market and so it was important that potential insurers saw any request for quotes for the Fund as realistic and credible. 

Ensuring suitable data quality and clarity over the benefits to be insured were highlighted as the key areas to deliver robust pricing, drive insurer engagement and reduce the potential for any unwanted issues following entry into the transaction. The Trustees noted our feedback that, given the potential transaction size, they were unable to drive a competitive process and would need to engage on an exclusive basis with a single insurer.

The Trustees liaised with the Union, who were very supportive of the proposal and the request for a shortfall contribution which was very timely given some changes within the Union. The Fund had benefitted from a further improvement in funding level due to investment returns and some favourable demographic experience. The Trustees took this opportunity to align their investment strategy even more closely to anticipated annuity pricing, and the Union provided a significant contribution to ensure a transaction was feasible.

In order to assist the Trustees in understanding the process we provided training on the next steps, including supporting them with their selection of an insurer. We had held “no names” discussions with 3 insurers who were expected to be interested in providing a quotation and fed back to the Trustees. The Trustees reviewed the information provided and after robust debate provisionally chose Aviva as their preferred insurer. We continued our ongoing liaison with Aviva to inform them that they had been selected as a partner for the Scheme and that the Trustees would seek to take this forward only once the Trustees were fully prepared.

The Trustees had previously completed significant data cleansing to improve their data which was therefore in an excellent condition. The Trustees were keen to finalise getting ready including:

• the benefit specification – including legal review by Walkers Solicitors. This revealed one potential benefit specification issue which needed to be resolved which the Fund’s previous administrators were able to provide the necessary documentation for with our help; and
• spouse details – the Trustees were on the verge of writing out to members, however an opportunity was identified to process the bulk annuity quotation quicker than expected. This window of opportunity required that data would be needed urgently and some changes were made to the data collection exercise.

The Trustees noted that if the opportunity were not taken, then there would likely be a delay of many months. The Trustees, with our full support, were comfortable with the increased speed of the process and noted that rapid decisions were likely to be required by the Trustees and the Union. 

In a matter of a few days, Barnett Waddingham provided the pricing document, benefit specification and data extract to Aviva to ensure the Trustees could take the available opportunity. Once the quotation from them had been received (it was provided quickly) and was shown to be competitive, we worked rapidly to bring this project to a conclusion. We liaised closely with the investment advisors to refine the investment strategy, with Walkers Solicitors regarding benefit specification queries and CMS Cameron McKenna regarding the transaction elements. 

We were in regular contact with the Trustees and the Union and ultimately the Trustees were able to secure the Fund’s liabilities in full with an insurance company in June 2022, with the likelihood of a potential refund to the Union once the wind-up is completed. 

Some of the challenges we helped the Trustee overcome included:

• clear visibility of the project and overall objective;
• ensuring a “small” scheme could still get engagement from insurers who are used to doing much larger deals;
• proactive project management in response to developments to ensure the project continued;
• working with two sets of legal advisors on the transaction; and
• potential benefit issue derailing matters in the final stages.
   

The following points were critical to achieving the positive outcome for the Fund:

• having Trustees and Union with the same overall objectives of delivering a buy-in;
• importance of early consideration of the long-term objective and having a clear plan to deliver the objective;
• working constructively across all parties (including the sponsor) and having clear communication between those parties at all times;
• flexibility to adapt and respond positively to developments throughout the process;
• value of early data cleansing work so that the Fund could move as opportunities arose; and
• working with the insurer to take the potential opportunity given that full member information was not available.