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'Top-Slicing' Medically Underwritten Buy-in
We jointly advised the trustees and the company on a medically underwritten pensioner buy-in for the Renold Pension Scheme, achieving very significant savings of over 10% relative to a traditional approach – successfully securing around £25m of the pensioner liability at no additional funding cost.
As part of the overall de-risking journey a buy-in opportunity was identified for the scheme – a £200m defined benefit arrangement sponsored by an international engineering company. The 'top-slicing' transaction involved a medically underwritten pensioner buy-in for the largest liability members (circa. 40), which represented around 25% of the total liability.
Adopting a medically underwritten approach offered potential savings from both the process of gathering medical and lifestyle information itself as well as benefitting from the high degree of competition in this market, with the specialist insurers looking to establish and grow their presence. These factors meant the pensions risk could be removed, including the concentration of longevity risk associated with these members, at an attractive price.
Barnett Waddingham sought to optimise the deal pricing by running a fully competitive tender process involving all of the active providers. A specialist third party was engaged to collate the medical underwriting information.
Through effective member communication, and direct engagement, an extremely positive response rate of over 90% was achieved.
Barnett Waddingham’s insurance sector specialists were also able to support the trustees and company in their review of the insurance counter-party.
Completion of the transaction with Just Retirement, including the use of a price tracking and execution mechanism designed to reduce the risk of market movements relative the gilt holdings used to fund the buy-in, provided a positive outcome for all the stakeholders.
The highly competitive pricing for the transaction resulted in an implied return underlying the buy-in policy considerably in excess of gilts, with full matching and risk mitigation in respect of the members covered. A key aim of removing the concentration of longevity risk was also achieved.
"The company considers this transaction to be an important move in helping to manage its legacy pension obligations and the impact of volatility on its balance sheet. Attractive pricing through the use of medical underwriting allowed us to secure a material proportion of the pensioner liabilities at no additional cost, thanks to the proactive advice and commitment of Barnett Waddingham."
"Working closely with the company, as part of the overall de-risking strategy for the scheme, the trustees had clear objectives for managing the risks associated with the liabilities for this group of members. Supported effectively by our advisers Barnett Waddingham and Pinsent Masons throughout the process, this buy-in transaction with Just Retirement represents an extremely positive result for all parties associated with the scheme."