This Scheme was in surplus on a proxy buy-out basis, and the Trustee and sponsoring employer agreed that securing benefits with an insurer was in the best interests of all parties. The Trustee recognised that this would be a significant project and put in place a plan to wind up the Scheme in about 18 months.
In the meantime, the Trustee wished to reduce risk within the Scheme’s investment strategy to minimise the likelihood of the Scheme’s funding level falling before assets were transferred to an insurer (which could result in either a delay in buying-out benefits, or the Sponsor needing to pay further contributions). Furthermore, the Trustee wished to maintain sufficient liquidity to be able to pay benefits due before any insurer took on this role.
The key focus was to align the Scheme’s investment strategy with potential changes in buy-out pricing, increasing the correlation between the Scheme’s investment strategy and any buy-out premium, hence maintaining a surplus on a buy-out basis. We considered a range of options with the Trustee, factoring in the best liability match, potential transaction costs and whether any of the Scheme’s current assets could be retained. The Trustee agreed an asset allocation which blended the Scheme’s current holdings with shorter dated credit and gilts to achieve a tailored solution, reflecting both the Scheme’s liability characteristics and the insurer’s funding basis.
While the investment strategy was being reviewed, the Trustee also prepared to approach insurers by carrying out a legal review of the Scheme’s benefits and writing to all members to verify the electronic data held. This process helps to give insurers confidence that the Scheme is ready for buy-out and allows them to quote an accurate price. The Trustee received quotes from four insurers and moved quickly to transact with the most competitive.
The Scheme is currently carrying out a GMP equalisation exercise, with plans to finalise the buy-out and wind up the Scheme later in the year.