The ICI Pension Fund trustees in the UK have embarked on two annuity buy-in agreements with Legal & General and Prudential Retirement Income Services.
The agreements, which cover in aggregate £3.6bn (€4.3bn) of pensioner liabilities, are part of their on-going de-risking strategy employed by the scheme sponsor AkzoNobel, a Dutch multinational conglomerate.
The coverage offered is broadly equivalent to one quarter of the company’s pension liabilities and one third of the ICI Pension Fund liabilities.
AkzoNobel chief financial officer Keith Nichols said, "By purchasing these bulk annuities, the Trustee has taken a significant step in actively de-risking liabilities and reducing the risk that AkzoNobel will be required to contribute additional cash in the future."
AkzoNobel believes that the agreement will raise its financing expenses by £25m per year from 2015 in its income statement and reduce balance sheet equity by around £640m.
The buy-ins include the purchase of bulk annuity policies under which the insurers will pay to the ICI Pension Fund amounts equivalent to the benefits payable to a subset of current pensioners.
In order to ensure that the members are unaffected by this transaction and will not see any changes in the way their pensions are paid, the pension liabilities remain with the fund, and the matching annuity policies will be held within the fund.
Commenting on the agreement, ICI Pension Fund trustee chairman David Gee said, "Members can be reassured that this will improve the security of their benefits by substantially reducing longevity risk for the fund."
LCP served as lead adviser to the trustees along with law firm Allen & Overy, whereas Towers Watson offered advice to AkzoNobel over the transaction.
Image: Prudential Plaza – headquarters on Broad Street – Newark. Photo: courtesy of Hudconja.