Helping the ICI Pension Fund progressively insure their pension risk
We have been working with the ICI Pension Fund since 2013 to help them design a blueprint for a phased buy-in approach to longevity risk management, now having completed a record £10bn of buy-ins across 20 transactions.
Background
The ICI Pension Fund (the Fund) is one of the largest and most mature DB pension plans in the UK. At the time of our appointment in 2013:
- c£12bn UK pension plan with c100,000 members
- 80% of liabilities in payment with £500m annual pension payments
- Broadly 95% hedged against interest rates and inflation
- Longevity identified as the dominant risk
Landmark first transactions
In March 2014, just six months after our initial appointment, the Fund insured £3.6 billion of pensioner liabilities across two buy-ins, £3bn with Legal & General and £0.6bn with Prudential. At the time, these were landmark transactions – over twice as large as any previous transaction and held the size record for over 4 years. It shifted the market in terms of both size and structure of transactions.
They were the first buy-ins to use an ‘umbrella and schedule’ contract, setting the blueprint for the phased approach to buy-ins used by many large schemes today.
Innovative umbrella contracts facilitating opportunistic transactions
The umbrella contract approach has allowed the Fund to move quickly to execute additional buy-ins with insurers on their panel when attractive pricing is available. This is because each buy-in is transacted under the same contract with the execution process limited to documentation of the key “tranche-specific” parameters – such as the price and parameters for the security arrangements.
In conjunction with robust price monitoring and nimble governance processes the Fund has benefited from being able to seize short-lived attractive pricing opportunities at times of market volatility. For example, in early July 2016 following the EU referendum and in March 2020 at the outset of the Covid pandemic.
The results
The Fund has now insured over £10bn of liabilities since March 2014 across 20 transactions, benefitting from being the “go to” scheme when insurers on their panel have competitive pricing available.
