The first bulk purchase annuity to give the employer potential investment returns while at the same time securing members’ benefits has been launched by M&G with a corporate client.
The first ever hybrid Value Share Bulk Purchase Annuity (BPA) deal has just been completed with a £500m transaction by a private corporate sponsor and its UK pension scheme, insuring around 3,200 pensioner and deferred members.
The Value Share BPA proposition is an alternative to a traditional buy-in arrangement, allowing trustees to insure the scheme members in the same way as a traditional buy-in transaction, while also allowing corporate sponsors to participate in the risk and reward generated from insuring their UK pension schemes. It offers employers with well-funded DB pension schemes the ability to secure members’ benefits while potentially returning capital to the corporate entity, by letting the scheme’s investments continue to grow rather than securing a one-and-for-all buyout annuity.
M&G re-entered the bulk annuity market in September 2023 and has since written £1.4bn of new business. It was a founding member of the BPA industry with an existing annuity book of £15bn with over 400 transactions completed between 1997 and 2016.
Clive Bolton, life insurance CEO at M&G plc, said: “This ground-breaking value share BPA transaction provides approximately 3,200 pension scheme members with the ultimate security of a buy-in, while sharing the financial risk and upside with the corporate sponsor. This significant de-risking milestone has been made possible thanks to the strong alignment of interests, collaboration and commitment between all parties involved.
“By completing the first ever BPA transaction that shares value with the sponsor, we are showcasing our ability to create innovative solutions that address our clients’ requirements. This has the potential to transform the market by providing an alternative option for sponsors of large UK pension schemes to consider as part of their de-risking endgame. We look forward to working with clients and advisers as we tailor this solution to meet the needs of corporate sponsors whilst securing the future pensions for the scheme members.”
Alison Fleming, partner at PwC, said: “We are thrilled to have supported the sponsor as lead adviser on this transaction, including both the buy-in and the structuring, set up and commercials for the captive reinsurer. Implementation of this ‘first of its kind’ structure is the culmination of our work with the Sponsor on pensions over a number of years. The solution we have achieved ultimately enables the trustee to achieve their derisking objectives and secure members’ benefits, whilst enabling the sponsor to access risks and rewards that would be passed to an insurer in a more traditional transaction.”
Deborah McWhinney, risk transfer principal at Mercer, said: “The Value Share BPA transaction represents an impressive outcome for the trustee board and reflects their dedication in achieving their de-risking objective for their members.”
