As part of our case studies collection, this example focuses on one of our smaller schemes, that we helped achieve a successful buy-in then buyout with.
In 2019, as the sole trustee of a relatively small and under-funded £4.5m scheme, its family owned sponsors from a property development background, were keen to solve their pension problems before handing down the businesses to their children. We introduced the various ‘end-game’ options, and agreed that buyout was preferable but some way off.
Solutions and Outcome
Our first move was to restructure the investment portfolio, adding some liability hedging and managing risk in the growth portfolio. This gave us and the sponsor a much more stable funding level to work with.
Our next suggestion was to put the Sponsor in contact with an advisor specialising in family-run businesses to consider liability management approaches. The advisor was able to help the Sponsor structure a liability management exercise that gave members greater flexibility and improved the scheme’s deficit.
Our knowledge of the Sponsor’s business was critical as we navigated through a business restructure and some asset sales, which we ultimately were able to use a small proportion of the proceeds from to close the now much smaller gap to buyout. Our experience in previous similar scenarios was essential, giving us the ability to act quickly, whilst using our reputation in the market to create added interest from insurers, despite the relatively small size of the scheme.
We insured the scheme in March 2021 at a significantly lower cost than the Sponsor had anticipated, and the Scheme achieved full buy-out just twelve months later in March 2022, with the Risk Transfer adviser commenting: “They were ready to transact and immediately make the most of the opportunity that was presented to them.”
The insurer also noted: “This transaction shows that small can be beautiful in the DB transfer market. This was an important deal for the Trustee and we worked hard, along with their other advisers, to make sure we could secure benefits for their members at a cost that was affordable to the Company. An important part in achieving this so efficiently was that the scheme was well prepared so we could progress quickly to meet the Trustee’s objectives.”
Finally, the sponsor noted: “When we started out … we could not have foreseen the changes that would come our way. But thanks to careful preparation and due diligence … we have managed to secure members’ benefits at a significantly lower cost than had been originally estimated. A great result all round and a testimony to the work of the team during these challenging times.”
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