Legal & General secures the UKâ€™s largest pension buyout for Â£2.5 billion with the TRW Pension Scheme.
27 November 2014
Legal & General’s Retirement, (LGR) business has secured a £2.5 billion partial buyout with the TRW Pension Scheme, (“the Scheme”) removing these liabilities from TRW Automotive’s balance sheet and insuring over 22,000 of the Scheme’s pensioners. This is the largest pension buyout in the UK to date and follows the £3.0 billion bulk annuity buy-in arrangement with the ICI Pension Fund that Legal & General secured earlier this year, confirming Legal & General’s position as the leading insurer in tailored pension de-risking solutions for larger schemes.
Not only is this the largest buyout transaction, but it also incorporates a number of innovative elements that were included as part of an integrated, broader risk management strategy for the Scheme. In particular, a pension increase exchange offer was made to over 15,000 pensioner members as part of the buyout process. These individuals were given the option to receive a higher level of non-increasing pension income in place of inflation linked income, coupled with the security of their pension being insured with Legal & General. Over 5,500 of these individuals accepted the pension increase exchange. TRW also chose to insure the liabilities for a further 16,000 of the Scheme’s pensioners with Legal & General and in doing so securing the benefits of nearly all of its UK pensioners.
The Scheme previously implemented a liability driven investment strategy with
Legal & General Investment Management in 2007.
Legal & General was selected as the insurance partner for the TRW Pension Scheme following a competitive tender process.
Neil Marchuk, Chair of the Trustee Board, said: “This buyout with Legal & General materially
de-risks our remaining pension obligations and provides security to members who are insured. Legal & General worked closely with us and our advisers to tailor the arrangement to meet the Scheme’s needs and we are very pleased with the insurer’s expertise, agility, pragmatism and level of service, all of which contributed to the success of this buyout.”
Joseph S Cantie, Executive Vice President and Chief Financial Officer for TRW Automotive, said: “This pension buyout significantly de-risks TRW Automotive’s balance sheet position, removing over £2 billion of pension risk in the UK. We worked closely with the Trustee throughout the process and are very supportive of the choice of Legal & General given the quality of their proposition, financial strength and brand.”
Kerrigan Procter, Managing Director, Legal & General Retirement, said: "We are excited to have been chosen to work with the TRW Pension Scheme, TRW Automotive and their advisers on this pioneering arrangement. We have worked with the Scheme over many years as they moved from Index Funds to Liability Driven Investment, and now to buyout with
Legal & General. It has been a pleasure to build such a great relationship and be in a position to help our client move all the way along their de-risking journey.
2014 has been a landmark year in the pension de-risking market with both the largest buy-in and the largest buyout in the
UK – both arranged with Legal & General. These arrangements demonstrate the breadth and depth of tailored pension
de-risking solutions that Legal & General offers.”
David Ellis, Mercer UK Lead Bulk Pensions Insurance Advisory and lead adviser on the transaction, said: “Mercer is delighted to have been lead adviser to TRW and the Trustee on the largest pension buyout to date in the UK. It is a
ground-breaking and innovative arrangement and lights the way for others to follow suit.”
Notes to editors
Legal & General has now written £8.3 billion of total annuity transactions to date in 2014. Our Q3 Interim Management Statement on 4 November 2014 stated, at that time, we had secured £0.8 billion of bulk premium in the fourth quarter. This £0.8 billion very largely represented the initial tranches of the TRW transaction.
A pension buyout is an insurance arrangement where a pension scheme secures annuity policies on behalf of its members. Annuitants cease to be members of the pension scheme and their entitlement is replaced with an annuity policy, with monthly payments made by the insurer. The pension scheme is typically wound up and the pension scheme risk and liability is removed from the sponsoring company’s balance sheet.
A pension buy-in is an insurance arrangement where a pension scheme insures all payments due from the scheme to a subset of the scheme’s members. Scheme members typically see no change in the administration of their pension. A buy-in removes risk from the pension scheme as it is an asset that perfectly matches a portion of the scheme’s liabilities. Pension risk for the sponsoring company is reduced, but the pension liability remains on the company’s balance sheet.
Background on TRW Automotive
TRW Automotive ranks among the world's leading automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company, through its subsidiaries, operates in 24 countries and employs approximately 65,000 people worldwide. TRW Automotive products include integrated vehicle control and driver assist systems, braking systems, steering systems, suspension systems, occupant safety systems (seat belts and airbags), electronics, engine components, fastening systems and aftermarket replacement parts and services.
TRW Automotive news is available on the internet at www.trw.com
Background on the TRW Pension Scheme
The TRW pension Scheme is a UK trust-based pension arrangement providing pension benefits to over 46,000 beneficiaries with assets of £3.5bn (31 March 2014). The Trustee of the Scheme is TRW Pensions Trust Limited.
The Principal Employer is TRW LucasVarity Limited, which is a wholly-owned subsidiary of TRW Automotive Holdings Corp.
The Scheme was established by a Trust Deed dated 30 June 1928 and is primarily the legacy of the former Lucas Industries Plc UK pension schemes. It closed to all future accrual in 2009.
Background on Legal & General
Legal & General is one of the UK's leading financial services companies and one of the UK's top 50 companies in the FTSE 100 Index. Legal & General has been an active participant in the insurance solution pension de-risking market for nearly 30 years and was voted Risk Reduction Provider of the Year at the 2014 and 2013 UK Pensions Awards and Risk Management Provider of the Year at the Pensions Age Awards 2014. Legal & General was also voted Insurer of the Year at the 2014 Insurance Risk Awards.
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