National Grid UK Pension Scheme Seals £2.8bn Buy-in

The £20bn (€22bn) National Grid UK Pension Scheme recently completed a £2.8bn buy-in with Rothesay Life, the life insurer announced today.

The buy-in policy is in respect of the benefits payable to pensioners aged 70 or less in Section A of the scheme, which has around 100,000 members, mostly from National Grid’s gas transmission and distribution businesses. It is closed to new members.

The transaction was complex, according to Sammy Cooper-Smith, co-head of business development at Rothesay.

“Our sophisticated risk management systems allowed us to provide economic certainty to the trustees ahead of transacting despite volatile market conditions in recent weeks,” he said.

Nigel Stapleton, chairman and trustee of the defined benefit (DB) scheme, said: “The buy-in provides greater certainty and assurance about the future costs of providing members’ pensions, and we see this as a positive and prudent way of managing the overall funding and risk of the scheme.”

Andy Agg, chief financial officer at National Grid, which is a FTSE 100 company, said the deal was “an important step in our long-term strategy to reduce the level of risk within our pension arrangements”.

The transaction with National Grid is the third buy-in in quick succession to have been announced by Rothesay.

Last month it disclosed a £3.8bn buy-in for drinks company Pernod Richard’s UK DB scheme, which followed a £4.7bn ‘buy-in to buyout’ deal with technology company Telent.

The news of National Grid’s deal takes to more than £30bn the value of buy-in and buyout announced so far this year, compared with a previous record of £24bn last year. Experts expect further deals to close this quarter, and also point to a strong pipeline of transactions for next year.

The high level of activity in the de-risking market has been due to a combination of factors, including stalling life expectancy improvements and improved funding levels.

At the end of September Rothesay and Prudential said they would appeal against a high court judgment blocking the transfer of £12bn of assets, covering 400,000 annuity policyholders, from Prudential to Rothesay.

Charlie Finch, partner at consultancy LCP, had said the ruling could pave the way for an increase in insurers’ capacity for bulk annuities.