Pension Corporation, a leading provider of risk management solutions to defined benefit pension funds, has today announced the appointment of Schroders to manage an initial £100 million segregated Global Corporate Bond Portfolio for Pension Insurance Corporation.

Mark Gull, Partner at Pension Corporation, commented:

“Schroders was chosen against strong competition because they not only demonstrated a sound process for managing corporate bonds and a well resourced team but, most importantly, they also clearly understood Pension Insurance Corporation’s goal of securing member benefits for the very long-term, and showed the flexibility to work with us in achieving this.

“Investing in Global Corporate Bonds in a mandate designed in partnership with Schroders, helps to maintain Pension Insurance Corporation’s strong risk discipline and enhances the diversity of its portfolio.”

Paul Forshaw, Schroders Head of Insurance Asset Management, said:

“By using Schroders' state-of-the-art Portfolio Modelling technology alongside our rigorous Credit analytics process, we were able to work with Pension Insurance Corporation to develop a customised investment solution to meet their very specific requirements. We see this as the start of a lasting partnership with Pension Insurance Corporation as we continue to work together to meet the challenges of constantly evolving client requirements and a changing market environment.”

Notes to Editors

For further information, please contact:

Schroders
Estelle Bibby
+44 (0)20 7658 3431

Pension Corporation
Jeremy Apfel
+44 (0)7966 138481

About Schroders plc

Schroders is a global asset management company with £103.1 billion (EUR 111.3 billion / $147.7 billion) under management as at 31 March 2009. Our clients are major financial institutions including pension funds, banks and insurance companies, local and public authorities, governments, charities, high net worth individuals and retail investors.

We apply our specialist asset management skills in serving the needs of our clients worldwide. With one of the largest networks of offices of any dedicated asset management company and over 250 portfolio managers and analysts covering all the major investment markets, we offer our clients a comprehensive range of products and services.

Further information about Schroders can be found at www.schroders.com or on Schroders Talking Point www.schroders.com/talkingpoint.

Issued by Schroder Investment Management Ltd, which is authorised and regulated by the Financial Services Authority. For regular updates by e-mail please register online at www.schroders.com for our alerting service.

About Pension Corporation

Pension Corporation removes pension risks from the trustees and sponsors of defined benefit pension funds. As a market leader it is the counterparty to risks ranging from full pension insurance buyout to longevity risk insurance, sponsor stewardship and asset-liability management. Established in 2006 by the Truell Charitable Foundation, the Group now provides increased levels of security and stability for fund members through Pension Insurance Corporation Ltd (“PIC”), an FSA authorised and regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). For further information please visit www.pensioncorporation.com

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A new report from Policy Exchange today revealed the true extent of the public sector pension debt, which until now has been kept hidden and out of official figures. The cost of these schemes is much larger even the publicly acknowledged national debt. Taken into account with net public sector debt, this second national debt brings the total the Government owes to £1.854 trillion, or 150 per cent of GDP.

Public Sector Pensions: The UK’s Second National Debt reveals that:

• Using the Government’s own calculations, the accumulated liability of unfunded public sector pensions schemes is estimated to be greater than the national debt. If proper financial methods are applied, the true figure is vast - £1.1 trillion, or equivalent to 78% of GDP. (Page 5 & 33)
• The cost of servicing the debt each year to pay for these unfunded schemes in now £45.2 billion. Even on the Government’s own figures, in 2005-6, the interest paid on the unfunded liabilities exceeded the interest paid on the National Debt for the first time. (Page 35)
• The Government has been using financially indefensible methods to work out its liabilities and how much workers need to contribute to the schemes. (Page 32)
• The Treasury has been subsidising pensions promises. The result is that someone who has been in the public sector for their whole career can now leave with a pension higher than the average they received when working. Neither the Treasury nor Parliament explicitly recognise they are paying this subsidy, which accounts in part for the rapid growth in liabilities. When added to the known subsidy, this means each of the five million employees in unfunded schemes receives a pension payment of £5,700 per year. (Page 42)
• Younger workers and those on lower salaries are subsidising older workers and high fliers. (Page 18)

Neil Record, author of the report and renowned pensions expert, said:

“The Government has allowed public sector pension liabilities to run out of control, with the Treasury spending contributions received for the next generation’s pensions to the pay the current generation of pensioners. The Government’s accounting for these pensions has been arbitrary and opaque, making it all but impossible to understand.

“Public sector workers deserve security in retirement. But the worry is that in denying the extraordinary generosity of the current schemes, the Government is creating an apartheid, when compared to those of the private sector. This could lead to high quality public pensions being completely abandoned - I want to avoid that.

“The Bank of England has already moved to make its schemes 100% funded. If the Government were to do the same, the changes would be costly – but the reality is this isn’t money that would otherwise have been saved, and we urgently need to bring transparency to the cost of these schemes.”

The report makes a number of recommendations that would make the total costs of public sector pensions much clearer. These include:

• For public sector employers that make pension provision for their staff to pay (jointly with employees for contributory schemes) a cash amount each year equivalent to the full market value of the pension benefits (i.e. current service cost) accrued by staff in that year.
• For annual cash pension contributions to be used to buy index-linked gilts of sufficient value to fully pay for all pension promises made in that year. The index-linked gilts should be purchased and issued at market prices.
• For a new body to be established (the Public Sector Pension Fund or similar) to receive contributions, to buy index-linked gilts, and to pay public sector pensions. The Public Sector Pension Fund should be required to break even, and charge public sector employers and employees accordingly.
• For the existing public sector pension liabilities to be ring-fenced by the Treasury and allowed to run off over their remaining life. All outstanding public sector pension obligations should be met in full.
• That the new arrangements should begin after a transition period starting from the date these (or similar) proposals become Government policy. This will allow for the establishment of the Public Sector Pension Fund, and for negotiations over the future shape of pay and pension packages.

Notes to Editors:

Net public sector debt was £754.0 billion at the end of April 2009 http://www.statistics.gov.uk/cci/nugget.asp?id=206

A full copy of Public Sector Pensions: The UK’s Second National Debt is attached.

This report was supported by Pension Corporation.

About Pension Corporation

Pension Corporation is committed to helping facilitate a debate around pensions, including public sector pensions, through its own published studies and research, sponsorship of other reports, public debates and other initiatives.

Pension Corporation removes pension risks from the trustees and sponsors of defined benefit pension funds. As a market leader it is the counterparty to risks ranging from full pension insurance buyout to longevity risk insurance, sponsor stewardship and asset-liability management. Established in 2006 by the Truell Charitable Foundation, the Group now provides increased levels of security and stability for fund members through Pension Insurance Corporation Ltd (“PIC”), an FSA authorised and regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). For further information please visit www.pensioncorporation.com

For further information please contact Amy Fisher on 07799 624 594 or amy.fisher@policyexchange.org.uk

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Pension Corporation, a leading provider of risk management solutions to defined benefit pension funds, today announces that the Trustees of the Warwick International Group Pension Scheme have agreed a pension insurance buyin agreement, to insure members’ benefits with Pension Insurance Corporation (“PIC”). The transaction relates to retired pensioners only and the liabilities are valued at approximately £57m. PIC will in due course also take over responsibility for the administration of these pensions.

The pension insurance buy-in means that the insurance policy will be held as an asset by the Warwick International Group Pension Scheme and will offset liabilities, bringing greater security to members’ benefits. The pensioners remain members of the Scheme.

A pension insurance buy-in is a key step towards fully de-risking a pension scheme. By reducing the overall level of pension risk and investment volatility faced by a scheme, it allows flexibility for sponsor and trustees to explore other options.

Warwick International is a leading supplier of speciality chemicals, headquartered in the UK with chemical distribution companies throughout the world. Warwick was acquired in August 2008 in a management buyout backed by Close Brothers Private Equity Capital (CBPE Capital LLP).

Pension Insurance Corporation is fully authorised and regulated by the FSA.

Phil Kelsall, as Chair of the Trustees, said:

“We are delighted to have appointed Pension Insurance Corporation as our partner in this insurance buy-in. For us, this is a crucial step in de-risking the Pension Scheme and increases the level of security for our scheme members. We were able to secure the insurance contract at a price within our funding provisions, so this seemed to be particularly good value.”

Steve Williams, Finance Director, Warwick International Group, said:

“We are pleased that the pension scheme Trustees have secured this insurance contract, which we believe represents the best outcome at this point for the members of the pension scheme. It adds a new level of security to members’ benefits by reducing the scheme’s exposure to risk.”

Edmund Truell, Group Chief Executive of Pension Corporation, commented:

“We are delighted to have been able to help the Trustees of Warwick International Group Pension Scheme increase the level of security of members’ benefits. Pension Corporation is clearly in the market to write new business and has the capital to do so. We maintained a conservative investment stance throughout 2007 and 2008 which, together with disciplined pricing, places us in a strong position to work with trustees today to help them achieve their aims. We look forward to further transactions in the near future.”

Notes to Editors:

For further information:

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Financial Dynamics
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

About Pension Corporation

Pension Corporation removes pension risks from the trustees and sponsors of defined benefit pension funds. As a market leader it is the counterparty to risks ranging from full pension insurance buyout to longevity risk insurance, sponsor stewardship and asset-liability management. Established in 2006 by the Truell Charitable Foundation, the Group now provides increased levels of security and stability for fund members through Pension Insurance Corporation Ltd (“PIC”), an FSA authorised and regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). For further information please visit www.pensioncorporation.com

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The public sector pay structure must be considered alongside public sector pensions, according to a new study published today by Pension Corporation, a leading provider of risk management solutions to defined benefit pension funds.

The study, “Evaluating public and private sector pensions: the importance of sectoral pay differentials”, authored by Dr Frank Eich, Pension Corporation’s Senior Economist, suggests that either public sector employees in areas like London do not realise how generous their pension promise really is, or they discount the full value of the promised pension given scepticism about its delivery.

The study shows that median gross weekly pay in the public sector was 14% higher than in the private sector in 2007/08. Despite this, as public sector pay is relatively unresponsive to market forces there are higher public sector vacancy rates and therefore lower service levels in high cost areas, such as London and the South East. These vacancy rates are not helped by the pension promise.

Pension Corporation is committed to helping facilitate a debate around pensions, including public sector pensions, through its own published studies and research, sponsorship of other reports, a public debate at the London School of Economics and other initiatives.

Frank Eich, Senior Economist at Pension Corporation, commented:

“This study shows that it is difficult to generalise around “gold plated” pensions and better pay in the public sector, because of varying wage differentials by region and skill group. This means that any review of public sector pensions must look at their impact on the labour market and seek to get rid of the distortions that exist there. Pension promises ought to be viewed by all concerned within the context of pay settlements.”

Key facts:

• In 2007-08 median gross weekly pay in the public sector stood at £522, 14% higher than the private sector; a similar gap has existed for more than a decade
• Median pay for senior private sector workers in London is around 50% higher than for their public sector counterparts
• For females, the highest median annual pay in 2008 was in education, which is mainly in the public sector and in which nearly a quarter of females working full-time are employed; hence the aggregate income distribution appears to be relatively generous for females in the public sector
• Female median full-time weekly pay in the public sector is nearly a third higher than in the private sector
• The banking, finance and insurance industries had the highest proportion of people with a degree or equivalent at 34% in 2007. This was followed closely by public administration, education and health at 31%
• Nearly 50% of employees in public administration, education and health were educated to at least A-level standard, a higher proportion than even in banking, finance and insurance
• The construction, distribution and transport and communication industries employed the smallest share of people educated to at least A-level standard

Key Findings:

• Median pay is higher in the public sector than in the private sector, but using this to assess relative pay levels is misleading : as lower paid jobs are mainly in the private sector; for example 45% of all full-time employed males worked in the manufacturing, transport, and wholesale and retail industries, mostly private sector, in 2007/08
• A more meaningful comparison ought to take into account characteristics such as educational attainment, occupation, gender, location and age
• Higher median pay does not necessarily imply that public sector employees get a better pay deal during their working lives
• Wage differentials between the public and private sector vary across the UK, with the private sector offering relatively more generous wages in low amenity / high cost areas to attract staff. This makes it difficult for the public sector to deliver a similar quality of service nationwide
• There is evidence that public sector pay is relatively uncompetitive in the South East, which helps to explain relatively high vacancy rates in the education and health sectors. Significantly, females in the public sector appear to be doing relatively badly, perhaps demonstrating why the NHS in the South East has difficulty attracting and retaining nurses
• Reported problems of recruiting and retaining staff in the education and health sectors in parts of the UK suggest that the beneficiaries do not fully realise how generous their pension promise really is
• However, it is possible that public sector employees discount the full value of the promised pension given scepticism about its delivery

Edmund Truell, Group Chief Executive of Pension Corporation, said:

“Pension Corporation is committed to leading the debate on public sector pensions, and I am delighted that this study throws light on some of the more complex areas of the subject. The public sector pensions debate which Pension Corporation is sponsoring at the London School of Economics in June will further illuminate this area. I also look forward to future studies on public sector pensions published or sponsored by Pension Corporation.”

About Pension Corporation

Pension Corporation removes pension risks from the trustees and sponsors of defined benefit pension funds. As a market leader it is the counterparty to risks ranging from full pension insurance buyout to longevity risk insurance, sponsor stewardship and asset-liability management. Established in 2006 by the Truell Charitable Foundation, the Group now provides increased levels of security and stability for fund members through Pension Insurance Corporation Ltd (“PIC”), an FSA authorised and regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). For further information please visit www.pensioncorporation.com

Notes to Editors:

For further information:

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Financial Dynamics
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

1. “Evaluating public and private sector pensions: the importance of sectoral pay differentials” is available for download here.
2. Pension Corporation, 3rd Pensions Tomorrow seminar, “Public Sector Liability”, London School of Economics, Wednesday 17 June. For further details please contact Jeremy Apfel at apfel@pensioncorporation.com

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The level of attention given to pension schemes during a pre-pack insolvency should be raised, Pension Corporation, a leading provider of risk management solutions to defined benefit pension funds, has highlighted in a memorandum to a House of Commons enquiry.

Pension Corporation’s written memorandum was to the House of Commons Business and Enterprise Committee, and is published in its latest report, “The Insolvency Service, Sixth Report of Session 2008-09”.

Whilst the increasingly used pre-packaged administration complies with the Enterprise Act requirement to achieve the best possible results for creditors, the result is often the admission of the pension scheme to the PPF and the reduction of member benefits.

Pension Corporation believes that this is unfair and that if the scheme does not have sufficient assets, equity or debt in the new business could be given to the scheme prior to an insolvency event. At a minimum, a statutory duty to consider securing benefits above PPF levels before an insolvency event should be considered.

Edmund Truell, Group Chief Executive of Pension Corporation, commented:

“In insolvency, pension schemes are usually the largest unsecured creditors and by that point it is generally too late for them to make any significant recoveries from the business.

“Insolvency can be both shocking and frightening for pension fund members, given the likelihood of a resultant reduction in their pension. We believe that it is vital to protect pension fund members during this process. With pre-pack administrations in particular, the level of attention given to pension schemes should be raised and a statutory duty to consider securing benefits above PPF levels before an insolvency event should be considered.”

Notes to Editors:

1. The text of the submission by Pension Corporation is below
2. For further information:

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Financial Dynamics
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

About Pension Corporation

Pension Corporation removes pension risks from the trustees and sponsors of defined benefit pension funds. As a market leader it is the counterparty to risks ranging from full pension insurance buyout to longevity risk insurance, sponsor stewardship and asset-liability management. Established in 2006 by the Truell Charitable Foundation, the Group now provides increased levels of security and stability for fund members through Pension Insurance Corporation Ltd (“PIC”), an FSA authorised and regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). For further information please visit www.pensioncorporation.com

 

Memorandum submitted by Pension Corporation – Page Ev49

Overview

1. In the current economic environment we are seeing an increasing number of insolvencies and as a result of this, the increasing number of cases of pre-packaged administration.
2. An increasing number of insolvencies inevitably leads to a rise in the number and size of the pension schemes going into the Pension Protection Fund’s assessment period, without necessarily going into the fund at the end of this process.
3. This is an uncertain period for scheme members during which they receive lower pensions than those to which they may be entitled, depending on the funding levels in the scheme.
4. It is vital to protect what is usually the largest unsecured creditor and consider whether the pension scheme debt can be secured above the PPF level, protecting members and reducing the cost for other levy payers.

Pension Corporation and the Market

5. Pension Corporation is a major participant in the UK pension insurance industry, specialising in pension risk transfer solutions for defined benefit pension funds in the UK. Since its inception, Pension Corporation has developed innovative, affordable solutions for pension schemes and had a 22% market share in 2008.
6. Pension Corporation underwrites pension risk management solutions for defined benefit pension funds including: Pension insurance buy-outs, Longevity risk insurance, Pension fund stewardship, Asset and Liability Management.
7. The pension insurance market is a large, fast growing and dynamic market, which exceeded £8 billion in 2008, more than double the business written in 2007. This figure is less than 1% of the potential market of DB pension schemes, which is estimated at £1 trillion.
8. The market is being driven by increasing numbers of sponsors looking to remove risk from their balance sheets, and Trustees looking to secure their members’ benefits for the very long-term.

Defined Benefit Pensions.

9. Defined benefit pension funds remain a live and worryingly important issue for many companies.
10. From a corporate perspective, being a scheme sponsor means maintaining an open-ended commitment for a very long period. This can have dramatic effects on its share price, limit strategic options including refinancing and debt restructuring, and ultimately damage the very security of the commitments it is pledged to maintain.
11. The security which the members are seeking, by paying into a pension fund, can in some cases act as a corporate straightjacket when companies are looking at takeovers, mergers or other re-structuring.
12. This can have immediate consequences for the survival of a company. It can also impact adversely the security and level of retirement benefits available to members.
13. In a recent survey by PWC, 90% of Finance Directors stated that they are concerned about the risks their pension scheme poses to the business; 30% intend to use contingent assets to offer trustees security, while enabling the company to limit cash contributions.
14. Given the level of concern with which pensions are viewed by many companies, it is not surprising that an insolvency event, with the ability to “dump” the scheme on the PPF, is often seen by struggling companies and their advisors as the only option.
15. This results in members receiving lower benefits—even if the scheme is funded above the PPF level, during the PPF assessment period only PPF level benefits are paid. It also has a knock-on impact for all other companies with a DB scheme, in that the PPF levy increases.
16. The PPF levels, for pension scheme members who have not yet reached normal pension age will, on reaching it, receive 90% of their pension, capped at around £28,000.

Pre-packaged Administration and Defined Benefit Pensions

17. In insolvency, pension schemes are usually the largest unsecured creditors. Unsecured creditors rarely make any recoveries from the business. Members are often shocked and frightened by the insolvency of the scheme sponsor and the resultant reduction in their pension.
18. This was recognised in the Pensions Act 2004, which established the PPF and gave them the ability to take on the creditors’ rights the scheme has, in order to best protect members and levy payers. However, by the time an insolvency event occurs it is usually too late for the unsecured creditors to make any significant recoveries.
19. The increasingly used pre-packaged administration, which allows companies to be sold on quickly, gives the insolvency practitioner and the directors of the company time to pre-arrange the value and terms of any sale.
20. Whilst this complies with the Enterprise Act requirement to achieve the best possible results for creditors, whilst keeping the business as a going concern, the result is often the dumping of the pension scheme on the PPF.
21. Consideration should be given to making it a statutory requirement that before any insolvency event, consideration should be given to ways to secure the PPF level of benefits other than via sending the scheme to the PPF. For example, if the scheme does not have sufficient assets, equity or debt in the new business (sometimes given to the scheme but only when the scheme enters the PPF assessment period eg Heath Lambert) could be given to the scheme prior to an insolvency event.
22. The scheme’s assets may then be sufficient to allow the scheme to compromise its debt above the PPF level and purchase an annuity for members.
23. This would have a number of advantages:
    1. There would be no additional calls on the PPF and no resultant levy increases.
    2. would not enter the PPF assessment period, members’ benefits would not have to be reduced and the costs associated with this would not fall on the scheme.
    3. Members would receive benefits from an FSA regulated insurance company, at least and usually above the PPF level of benefits.
24. The PPF’s own figures show that 30 schemes which had previously entered into the PPF’s assessment period have now come out of it due, in the main, to their funding levels allowing for greater benefits than those which would be paid under the PPF. The PPF currently has 291 schemes in the assessment period, with a total of 122,622 members.
25. The PPF assessment process lasts for around two years, during which, irrespective of the actual level of funding in the pension fund, the scheme members have their benefits cut to the levels of the PPF. During this process there is a great deal of anxiety placed on the scheme members as they wait to find out what their levels of benefits are. The administration burden and cost of reducing benefits is also high.
26. In volatile market conditions when asset valuations are constantly changing, this two year period could mean the scheme missing out on options to secure the members’ benefits for the long term.
27. The level of attention given to pension schemes during the pre-pack insolvency should be raised and a statutory duty to consider securing benefits above the PPF level before an insolvency event should be imposed.

16 February 2009

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London, 27 April, 2009 - Pension Insurance Corporation, a leading provider of risk management solutions to defined benefit pension funds, today announces that it is to insure the Retirement Benefits Scheme of Food from Britain (“FFB”). FFB was a Food Industry Export Promotion Agency, primarily funded by the Department for Environmental Food and Rural Affairs (DEFRA), and is currently being wound up.

The Trustees, working with their advisers, and after a rigorous vetting process of a short-list of several potential providers, selected Pension Insurance Corporation on the basis of its overall capabilities, flexibility and competitive pricing. Pension Insurance Corporation has insured the benefits of around 35,000 pension fund members over the past 12 months.

The Trustees utilised a number of different evalution criteria and were impressed by Pension Insurance Corporation’s strong solvency position and its conservative approach to capital management. The Trustees were advised by Mercer Limited and legal advice was provided by CMS Cameron McKenna LLP.

The relevant current and future pensioners of the scheme will be issued individual insurance policies by Pension Insurance Corporation in due course as part of the winding up of the Scheme.

John Bevington, Chairman of the Trustees, said:

“We sought a provider whom we considered would provide longevity and effective support to our scheme members, whilst also being financially resilient and secure. Pension Insurance Corporation has a strong solvency position, with a current year-end solvency ratio of 232%. It enacts a highly prudent risk policy, assuming that 50% of any spread between the corporate bonds and LIBOR is in respect of expected defaults. We were also impressed with the expertise of the Board and the calibre of the investor partners. Within our short-list, the Pension Insurance Corporation team demonstrated the most comprehensive understanding of all our requirements and we are confident we made the right appointment.”

David Ellis, Principal at Mercer Limited, said:

“The transaction demonstrates that it is still possible to complete a successful bulk annuity deal despite difficult markets. Mercer worked with the Trustees to carry out a competitive tender process and, after considering a number of proposals, the Trustees decided that Pension Insurance Corporation offered the best solution for Scheme members.”

John Coomber, Executive Vice Chairman of Pension Corporation, commented:

“We are pleased to work with the Trustees of the Retirement Benefits Scheme of Food from Britain in order to achieve security and stability for their members’ benefits.”

Edmund Truell, Chief Executive of Pension Insurance Corporation, commented:

“We are delighted to have concluded our second insurance transaction of 2009 and expect to close others in the near future. In what is clearly a difficult period, Pension Insurance Corporation remains well placed to provide risk transfer solutions to the trustees and sponsors of defined benefit pension funds.”

Notes to Editors:

For further information please contact:

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Financial Dynamics
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

About Pension Corporation

Pension Corporation removes pension risks from the trustees and sponsors of defined benefit pension funds. As a market leader it is the counterparty to risks ranging from full pension insurance buyout to longevity risk insurance, sponsor stewardship and asset-liability management. Established in 2006 by the Truell Charitable Foundation, the Group now provides increased levels of security and stability for fund members through Pension Insurance Corporation Ltd (“PIC”), an FSA authorised and regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). For further information please visit www.pensioncorporation.com

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David Collinson among panellists who are discussing the longevity swap market, the PPF, security for buy-in contracts, and whether insurers will need to strengthen reserves.

The panel

Chairman: Clive Wellsteed, partner, Lane Clark & Peacock
Wellsteed is a partner on LCP’s buyout advisory team, advising on some of the defining buyouts of 2007. He is a regular conference speaker and commentator on the buyout market, with a decade of industry experience at LCP.

David Collinson, partner, Pension Corporation
Former global head of M&A services at Watson Wyatt, David has 19 years’ experience in actuarial consultancy and transaction services. Collinson became a partner with Watson Wyatt in 1993.

Hugo James, sales development director, bulk annuities, Legal & General
Based in London, James has overall responsibility for Legal & General’s sales in the bulk annuity market. He is focused on helping develop solutions and structures to support larger schemes seeking to de-risk.

Nick Johnson, head of defined benefit risk management, Norwich Union
A qualified actuary, Johnson has headed up NU’s bulk annuity proposition since January 2006. He is currently working with a number of trustee bodies to develop innovative solutions to manage the transition to insured benefits.

Myles Pink, business development director, Paternoster
Pink is responsible for new business generation, negotiation of commercial terms, devising product structures and trustee/adviser relationships at Paternoster. Pink advised on the initial fundraising for Paternoster in early 2006. Before this, he worked in investment banking at Hawkpoint Partners and Goldman Sachs.

Andy Reed, director, defined benefit solutions, Prudential
Reed is a qualified actuary with over 20 years’ experience in the UK insurance industry. Having implemented various significant bulk transactions, Reed is currently responsible for Prudential’s innovation within the DB market.

Margaret Snowdon, operations director, Lucida
Snowdon is a fellow of the Pensions Management Institute and a past vice-president. She is a fellow of The Pensions Advisory Service as well as chairman. Snowdon speaks at industry conferences and is a frequent contributor to pension journals.

 

WELLSTEED: What is your view on the longevity swap market? Is there the same potential for growth as the market for buyouts and buy-ins?

COLLINSON: Longevity insurance is growing in appeal in 2009 as many pension funds with large deficits calculate that even if markets recover they face several years until a full buyout can be achieved. Given this reality, funds are focusing on ways to reduce unrewarded risks such as longevity providing increased security for members. For those funds that decide they are better off to stay fully invested in financial markets at current values. longevity insurance is attractive as it substantially eliminates a significant long-term risk to a fund. Is there the same potential for growth as the market for buyouts and buy-ins? Based on the level of interest in longevity insurance from pension funds we see this market growing in line with the market for pensioner buy-ins and buyouts.

JAMES: The longevity insurance and swap markets are in the very early stages of their development. While there has been much interest from schemes, companies and their advisers, the only longevity swap transactions have been those made by insurers. That said, it is almost inevitable that schemes will start to transact at some point soon.

Longevity swaps provide additional options for de-risking pension schemes and we encourage their consideration and use, where appropriate. However, as with all products, schemes should consider what risk they actually wish to reduce and how this compares with alternative de-risking options available. For example, a scheme that is only 80% funded and holding more than 50% of its assets in equities may be better advised to reduce its investment volatility before spending significant sums or time on reducing its mortality risk. The impact of the former is likely to outweigh the latter.

JOHNSON: For most pension schemes, we see the longevity swap debate as an interesting intellectual exercise, but one that currently has little real world application. There are a number of practical complications for which we haven’t seen any workable solutions; these include cost effectiveness, difficulties of understanding and documenting exactly what you are getting. However, the main barrier we see is what happens on subsequent buyout. The swap will undoubtedly have an uncertain market value, and little intrinsic in-specie value to an alternative buyout provider, so on entering into a longevity swap arrangement trustees are severely restricting future options. It’s also worth noting that a number of solutions exist for removing or managing longevity risk within a traditional insurance environment. For the vast majority of schemes these should provide a more practical alternative.

PINK: Longevity insurance could be a very attractive derisking option for those trustees and sponsoring employers who might find funding full buyout or buy-in more challenging following recent falls in asset values.

This solution enables trustees to remove the risk of members living longer than anticipated. Benefits to trustees include them being able to manage their scheme funding with more certainty and the risk of a regulatory requirement to increase life expectancy assumptions is removed.

We have submitted a number of quotations for this solution and several schemes are close to finalising a transaction. Longevity insurance represents a useful solution for those schemes wishing to either manage some of the risks in their scheme, or who are working towards full de-risking.

REED: The longevity swap market is yet to be really tried and tested in relation to pension schemes. We continually look to innovate and enhance our range of defined benefit solutions and have therefore assessed longevity swaps in great detail. At this point we do not see how longevity swaps offer most trustees an effective means of de-risking their scheme, compared with other solutions available. Swaps only hedge against part of the scheme risk and yet are very complex, with various legal and contractual complications making them difficult to implement. Therefore, with the exception of some very large schemes, swaps are unlikely to be of benefit to the large majority of trustees.

SNOWDON: There is growing interest in this area as schemes find themselves faced with increasing longevity risk and declining assets. Most schemes would like to buy out, but the reality for many is that their assets today are not readily marketable. This drives trustees to consider ways to reduce the longevity risk while holding on to the assets. Trustees are also familiar with hedging interest rate and investment risks, so hedging longevity risk is not an unfamiliar concept. The downside is finding suitable counterparties and the cost of the solution. Ultimately, buyout, or buy-in, provides full coverage whereas longevity swaps are only covering one of the risks.

WELLSTEED: The current economic downturn is likely to mean more schemes being assessed for possible entry into the Pension Protection Fund. What factors determine whether you are willing to provide buyout quotations to potentially secure higher than PPF benefits? Are you put off by the possibility these schemes may ultimately enter the PPF rather than buy out?

COLLINSON: We are always keen to see whether our competitive pricing and innovative approach can facilitate pension scheme members receiving more benefits than they would otherwise be entitled to if they entered the PPF, as with the pension insurance corporation buy out of the UK Can Pension Plan. Typically this situation arises for pension schemes that are better funded and where the trustees have a determination to find the best possible outcome for their members. We are prepared to invest the time and effort needed to explore possible solutions for scheme members, in the knowledge that for some such schemes entry into the PPF may be the end result.

JAMES: Many of the schemes that have arranged deals with Legal & General over the last 22 years have been unable to afford a full buyout. As a result we are happy to quote for all types of arrangements including those schemes close to entering the PPF as we have a wealth of expertise in this area.

Where there is the possibility the scheme may be transferred to the PPF, there is always a risk that the arrangement will not be completed but we work with scheme trustees and their advisers to understand whether there is a good chance that the scheme benefits will exceed those offered by the PPF. If so, we will generally seek to support the trustees in securing a buyout on the best terms possible, given the value of the scheme’s assets and liabilities.

JOHNSON: For any scheme the decision to quote will depend on a number of factors. The most important one is the ability to price and administer benefits. The second is a clear understanding of the reason the quote is being requested and the decision points leading up to buyout. This is no different for schemes that may enter the PPF, and providing we have a clear understanding of these we will consider quoting. The possibility of entering the PPF is just one of many factors that mean we may not ultimately win a scheme. This only serves to highlight the benefits of a good working relationship between trustees, their advisers and buyout providers.

PINK: When we are asked to provide a quotation we review the scheme against a number of criteria (including, for example, funding level, member profile, investment portfolio, administration records, mortality data etc).

For cases where the corporate sponsor has failed and there is a possibility of the scheme being transferred to the PPF, we also make an initial assessment of the scheme’s funding relative to the PPF funding level. This helps us advise the trustees appropriately before they invest time and resources in reviewing quotations for a solution which might not be viable.

REED: Our key aim is to help schemes meet derisking goals and we will continue to offer quotations to schemes we feel are genuinely looking to transact. We have always assessed each scheme on its own merits and will carefully weigh up the likelihood of each deal proceeding (such as looking at the sponsoring employers financial position and assessing the scheme investment strategy), but we also trust the judgement of EBCs, who play a key role in the completion of any deal. Where there is a risk such schemes could enter the PPF, we would want to be clear about Prudential’s contractual and legal obligations, for example with regards to surrendering the benefits.

SNOWDON: It is true many more schemes are likely to enter the assessment period for PPF, as the strength of covenant of many employers faces rapid decline. This is bad news for scheme members and the PPF, therefore any solution involving the security provided by a UK-regulated insurer will be welcome. Lucida focuses primarily on bespoke solutions for large schemes, but would be willing to quote for schemes where higher than PPF level benefits could be secured by the funds available. Our decision to quote is based on many factors and this is no different from the approach we take to quoting for other schemes.

WELLSTEED: There are many different views on whether trustees should insist on additional security or collateral being provided by insurers for buy-in contracts. What do you think are the most important factors that should be factored into trustee analysis on this issue?

COLLINSON: For the buyout industry as a whole additional security and collateral arrangements introduce additional risks and in the long run will be damaging to pension scheme members’ interests if they result in increased costs and different classes of insurance policyholders. To our knowledge no UK insurer has defaulted on a guaranteed annuity payment and trustees should question whether in reality additional security arrangements represent value for money.

JAMES: Additional security and collateralisation have become the hot topic for larger buy-ins over the last year. As we go through these challenging economic times and we see historically robust institutions struggle or in some cases fail, it is inevitable that trustees and sponsors reconsider the impact of transferring large proportions of their scheme assets to a single counterparty. That said, it is important to consider the wider picture and not simply jump straight to a solution that may either add little or, in the worst case, actually damage a scheme’s position.

JOHNSON: Additional security has without doubt been the number one topic of conversation with all trustees of buy-ins in the post Lehman’s era. In common with all providers, we would previously have argued that additional security was not necessary, providing the trustees choose a well-capitalised, professionally managed and regulated insurance company. However, we now recognise that trustees are making a decision that leaves the scheme, and therefore sponsoring employer, with counterparty risk with a lifespan equal to that of the members insured; this could have a significant financial impact for 20-50 years and as such it is perfectly understandable that trustees ask for additional security.

PINK: The debate over whether trustees should insist on additional security in a buy-in contract is one for both trustees and sponsors to consider in the context of the support that could be required from the corporate covenant if the insurer were to fail to meet its obligations under the contract. Under certain security arrangements, the trustees and sponsor are opting out of the potential advantages and disadvantages of being combined with the risks associated with other policyholders (known as mutuality). Trustees should consider carefully the circumstances in which such arrangements would benefit them (e.g. other risks held by the insurer are mispriced) and those circumstances in which they would benefit equally with other policyholders.

REED: Much has been debated on this matter already. Our view is that while a few (large) schemes may seek additional security in this way, it is not an appropriate step for all schemes to take. One of the key benefits of dealing with a large insurer is the pooling of diversified assets across that business. Once you start segmenting lots of individual pots into ring-fenced funds, the benefits of the pooled financial strength become reduced. Furthermore, additional security comes at extra cost. And not all schemes will be in a position to fund for this. It should be remembered that insurers already have to reserve for higher capital requirements compared to pension schemes and so there is already added security of completing an insured transaction.

SNOWDON: The number of requests for additional security around a transaction is increasing and like some other insurers, we have responded to this need. Collaterisation is already common in the insurer to insurer transfer market (where there is no Financial Services Compensation Scheme protection), but its extension to DB schemes reflects the degree of nervousness felt by trustees about the market generally. Collaterisation could be described as a belt and braces approach as trustees are already well protected both by the reserves held by the insurer and by the FCSC in the unlikely event of insurer failure. Counterparty security is expensive and will generally only be available to the larger schemes.

WELLSTEED: Is it inevitable that insurance companies will need to strengthen their reserves going forward? For example, do you think insurers will be required to increase their assumed rate of defaults on corporate bonds in light of recent market events? How might this impact pricing?

COLLINSON: Insurers need to continuously review their approach to reserving and risk management bearing in mind the responsibility they have for the safety and security of members’ benefits; the increase in credit spreads has put assumptions regarding future defaults into sharp focus. Some insurers, as a response to changing financial conditions, may well increase their contingency reserves for possible future defaults.

JAMES: Over the last few weeks we have seen announcements from a number of the listed insurance companies relating to reserving in the light of current economic conditions. As expected, significant additional reserves, are being put aside by insurers to cover potential future credit losses, which for most will cover them against a credit default scenario worse than any period in history. Insurers will continue to monitor these reserves and, if appropriate, add to them to ensure that they are able to meet their liabilities as they fall due.

Unlike reserving which, in the absence of major events, is typically reviewed on an annual basis, pricing is reviewed on an ongoing basis by insurers. Therefore, the impact of increasing default assumptions has already and will continue to be reflected in the pricing of annuities. No specific rise is likely to follow based on the recent announcements. However, the quantative easing measures starting to be employed by the government are likely to depress yields on gilts and bonds accordingly, which will impact pricing of annuities.

JOHNSON: The events of the last six months have highlighted the need for a dynamic and robust approach to ensure reserving and pricing assumptions adequately reflect changing economic conditions and expectations. The issue of default risk has highlighted this, meaning insurers without a proactive approach are required to make additional allowance in their reserves. Inevitably, where a company is required to increase its reserves it will result in an increase in the cost of writing business, with a corresponding impact on prices. However, it is also true that an approach that more fully identifies and quantifies individual risks provides a more sophisticated pricing model which over the long run should better reflect the actual cost of writing business.

PINK: Whether insurers will need to strengthen reserves for corporate bond defaults will depend on a number of factors, including how prudent their current reserving is and the nature and quality of assets they hold to support liabilities. The prudent approach which many insurers are taking towards default risk is at the level which would have been required to withstand the Great Depression for the entire duration of their portfolio (i.e. 20 years or more).

As insurers increase the capital they hold in respect of the risk of default, then pricing will increase to generate the required return on the capital. The extent of any increase in price will depend on both the extent of any increase in reserving (which is a prudent estimate) and the insurer’s best estimate of actual default.

REED: UK insurers are required to reserve on a prudent basis and should be making appropriate allowance for anticipated defaults on corporate bond assets. Within the UK shareholder annuity funds, Prudential has built up a significant credit reserve of £1.4bn to allow for future defaults. This reserve can withstand the equivalent of the average default experience during the Great Depression occurring every year over the life of the annuity portfolio. We anticipate that the current flight to quality within the bulk annuity market will continue and all providers will be considering their default assumptions carefully.

SNOWDON: Insurers are required to consider current market conditions when assessing default risk and this has led some insurers to strengthen their reserves. Further deterioration in the market could lead to further strengthening. Insurers do allow for default risk in pricing and to the extent that this risk is believed to have increased this would be factored into pricing. However, it is worth noting default assumptions are intended to cover the whole term of bonds and not just the next year or two. So the overall level assumed may not be impacted much by current turbulence.

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Pension Corporation (“PC”), a leading provider of risk management solutions to defined benefit pension funds, is pleased to announce that 2008 was a year of considerable achievements, during which the company wrote £1.6 billion of new insurance business, providing security and stability to around 30,000 fund members.

PC is also pleased to announce that its corporate subsidiaries, telent and Quadriga, improved their operational profit performances over the year, making combined EBITDA of £46 million in the year to March 2008.

2008 Insurance Group Highlights

• New insurance business of £1.6 billion transacted
• Around 30,000 pension fund members insured
• Largest ever UK pension insurance buyout with Thorn Pension Fund
• Robust solvency – regulatory capital ratio 232% of required minimum
• Corporate Bond default assumption equal to 50% of spread over Libor
• Averaged over 70% of insurance company assets in cash or gilts during 2008

Edmund Truell, Group Chief Executive, commented: “Pension Corporation is today well placed to capitalise on the progress of the first three years and to be one of the market leaders in the UK pension insurance market, working with trustees and sponsors in the provision of risk transfer solutions that bring safety and security to pension fund members. The principles of pension risk transfer are now well understood. Trustees, their advisers and sponsors widely recognise that pension risks are not comfortable bedfellows with corporate balance sheets.

“Pension Corporation is unusual in its ability to provide combined corporate finance and insurance solutions that are designed to meet our customers’ needs in a safe and secure way. We look forward to building on this very substantial progress in 2009.”

Group Risk Management

PC kept its investable assets highly liquid over most of the year: up until December Pension Insurance Corporation (“PIC”) held over 70% of its assets in either cash, gilts or other liquid instruments. In December, PIC invested a substantial amount in high-grade corporate bonds. PIC had negligible exposures to the Lehman and AIG failures.

PIC takes a conservative view of possible defaults and recovery rates on the corporate bonds it holds. It has only 1% of its assets in equities and real estate. PC takes a ruthless approach to unrewarded risks and it is the Group’s policy to hedge as much inflation, duration, and longevity risk as possible. The Group’s hedging against duration risk has protected it against the fall in interest rates and, as importantly, against the volatility of interest rates. An example of this volatility was seen during the last six weeks of 2008, when the price of long-dated gilts rose over 14%.

The Group has been innovative in its approach to hedging inflation risk, for example investing in index linked bonds and transferring the duration risk to third parties. PIC and its Guernsey reinsurance affiliate, Pension Security Insurance Corporation, are pioneering the hedging of longevity risk.

As well as offering longevity insurance to pension fund clients, in the form of a full risk transfer to cover not only primary pension fund members but also spouses and dependents, the Group has been assiduous in removing longevity risk from its own balance sheet. Some 79% of the longevity risk attributable to pensioners in payment and deferred pensioners over 55 has so far been transferred to third parties and off the PIC balance sheet. These counterparties are highly reputable and well rated. PC enters 2009 without the legacy issues affecting some of its competitors.

Pension Insurance Corporation

On the new business front, five insurance transactions totalling £1.6 billion were written by PIC in 2008. In two of these five cases PIC has been able to increase the pension benefits paid to members. Of particular note is UK Can, where PIC has provided insurance to members whose former sponsor had gone into bankruptcy. This was repeated after the year end with Leyland DAF.

PIC anticipates troubled corporate sponsors to be a major source of opportunity in the coming months and years, with our insurance solutions able to provide a greater level of benefits to pension fund members than they might have otherwise received from the Pension Protection Fund.

PC is proud of its flexibility, being able to offer insurance and corporate solutions. This flexibility was the precursor of its successful closing of the £1.1 billion Thorn pension insurance transaction, the largest corporate buyout in the UK to date.

Following an open, competitive process held by the Thorn Trustee, who had implemented improved asset and liability management, PIC agreed to insure the fund in December 2008. A significant improvement to the pension benefits promised to members was provided, alongside increased security of members’ benefits from a UK FSA authorised insurer.

Pension Corporation Investments

PC has the proven ability, through Pension Corporation Investments (“PCI”), to identify, evaluate and execute complex investment opportunities that include operating companies, supporting relatively large pension fund liabilities and risks.

PC’s major operational asset is telent, the former GEC Marconi. We are pleased to report that the operational business has continued to flourish under PCI’s ownership, with both revenues and profits increasing. The telent management are to be congratulated on the level of new contract wins, reflecting the strong infrastructure and solid technology base of the company. Funding negotiations with the Trustee continue.

Under PC’s stewardship and support for its capable management, Quadriga, Europe’s largest hotel entertainment supplier is improving profits and is cash-generative for the first time in many years. In addition, substantial investment is being made in new technology, to offer high-definition television services to hotel users.

Capital

The substantial achievements of PC were recognised by the admission of JP Morgan into the investor base. As the precursor to a second funding round, JP Morgan invested from its own balance sheet and has subsequently been appointed as placement agent for the forthcoming £400 million second funding round.

JP Morgan subscribed new cash at a premium to the price paid by original investors, reflecting the significant franchise value that has been created by the management team.

Our approach to capital management is very conservative. One area receiving much attention currently in the market is the extent to which insurance companies provide for potential defaults on their corporate bond holdings. We acquired the bulk of our corporate bond portfolio in December 2008 and have few holdings of subordinated financial bonds. Notwithstanding this high quality, we are currently assuming that 50% of any spread between our corporate bonds and Libor is in respect of expected defaults. We believe this approach, which mirrors that now used by the Bank of England, is one of the most conservative assumptions in our industry.

As well as a conservative approach to managing our capital, our solvency position is strong, with a year end solvency ratio of 232%.

Additionally, an embedded value loan programme was initiated with £50 million of capital, secured against the embedded value of PIC. The company expects to be able to tap this source of capital as it expands its business.

This financial strength positions PIC well to build on its 22% UK market share in pension insurance deals in 2008.

Board and Management

Since its establishment by the Truell Charitable Foundation three years ago, PC has expanded its board and management team considerably. The Boards, partners and employees are widely regarded as one of the finest teams in the industry. The Boards, led by Group Chairman Sir Mark Weinberg, ensure the highest standards of governance; whilst the management, led by group CEO Edmund Truell, have pursued a cautious and prudent policy which maximises pension security for fund members, at the same time as building the scale required in this field.

PIC was delighted that John Coomber, former CEO of Swiss Re, stepped up to the role of Executive Vice Chairman to assist in the running of the insurance business in mid-2008. The drive for continuous innovation provides solutions that are tailored to the needs of customers in a rapidly changing world, with increasing numbers of sponsors looking to remove risk from their balance sheets and Trustees looking to secure their members’ benefits for the very long-term. At the same time, constant price discipline within a consistent risk reduction framework has combined to ensure that new business is written on appropriate terms and that the risks taken in assets and liabilities are closely managed.

Notes to Editors:

For further information please contact:

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Financial Dynamics
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

1. The Leyland DAF transaction was completed in January 2009 and therefore is not included in the 2008 figures
2. The year end solvency ratio is the amount of Available Capital Resources above the Required Capital
3. Thorn Pension Fund background
   1. In late 2006, Terra Firma Capital Partners, the then private equity owners of Thorn, requested quotes for the pension insurance buy-out of the Thorn Pension Fund.
   2. Pension Insurance Corporation was involved in several rounds of insurance bids, lasting almost a year, to the point where it was not economic to transact the insurance deal on its own merits.
   3. Drawing on its private equity expertise, a significant competitive advantage, Pension Corporation proposed a transaction encompassing both the Thorn businesses and the pension fund. This was a solution tailored to the specific needs of the client and which also offered significant benefits to the pension fund members.
   4. By acquiring Thorn, Pension Corporation assumed stewardship for the Thorn Pension Fund as well as agreeing to acquire Brighthouse, Quadriga and Threshers, other Terra Firma Capital Partners portfolio companies.
   5. Within two weeks, Pension Corporation had contracted to sell the operating businesses of Brighthouse and Threshers on to Vision Capital. Quadriga, a market leader in its field, was retained.

About Pension Corporation

Pension Corporation removes pension risks from the trustees and sponsors of defined benefit pension funds. As a market leader it is the counterparty to risks ranging from full pension insurance buyout to longevity risk insurance, sponsor stewardship and asset-liability management. Established in 2006 by the Truell Charitable Foundation, the Group now provides increased levels of security and stability for fund members through Pension Insurance Corporation Ltd (“PIC”), an FSA authorised and regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). For further information please visit www.pensioncorporation.com

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While the merits of the UK government’s fiscal stimulus are still a subject of debate, much less attention has been given to the impact of the proposed structure of this new government debt.

In the pre-Budget report the government revealed it would fund the majority of the additional £36.4bn (€40bn, $53bn) of debt to which it was committing through short-term bonds. Only £6.3bn will be issued as long-term or index-linked bonds. What is the significance of this imbalance? And should the government be issuing a higher proportion of longer term debt?

A feature of the UK gilts market is that the demand for long-dated and index-linked gilts far outweighs supply. This is a major problem for pension funds and a major opportunity for the UK government. Pension funds, pension insurers and annuity providers hold more than £1,000bn of defined benefit pension and annuity liabilities. These liabilities can stretch out over decades with a significant proportion payable in the distant future, with pensions nearly all inflation-linked.

For regulatory and business reasons, the holders of these long-term liabilities would like to match them with assets of the same duration and nature. Pension insurers, for example, are keen to ensure their liabilities are sufficiently hedged against inflation and interest rates.

However, at the very long end of the gilt market, supply is limited and there are few matching options available through corporate bonds. There are some index-linked gilts with durations in excess of 20 years available but at about only £30bn in size, this is far below the amount required by pension funds and pension insurers today, and certainly in the future.

A direct consequence of this is that, unlike the US and the eurozone countries, the UK has an inverted real yield curve in gilts dated between 30 to 50 years. Real yields are significantly below 1 per cent at the 30-year mark in the UK compared with above 2 per cent elsewhere.

Coupled with the demand from other investors, the mismatch between high demand and limited supply has meant that real yields are structurally suppressed at the long end.

Issuing more long-dated index-linked gilts is one possible solution to this problem and could have several benefits. The government, could take advantage of the huge demand for long-dated gilts and tap into a ready and cheap supply of long-term funding. This would also reduce the refinancing risk associated with shorter-term gilts. Issuing more at the long end would also cause yields to rise.

As these yields are used as part of the discount rate at which pension liabilities are discounted, the present value of these liabilities would fall to reflect the increased return. This reduces deficits for pension funds and reduces the cost of managing defined benefit liabilities for both sponsors and pension insurers. Other long-term investors, including annuity providers, would benefit from enhanced returns thanks to the increased yield.

Issuing more long-term gilts would also avoid any problems associated with such a huge offering of short-term bonds. There is a fear that such a large issue of short- and intermediate-term gilts would exceed the appetite of UK and overseas investors to buy them. We have already seen German 10-year government bonds fail to sell out in a recent auction. In addition, the huge programme to issue short- and intermediate-term gilts could cause a crowding out of buyers for corporate debt in a year when a significant amount of corporate debt is maturing.

The government should investigate further the possible benefits of greater long-term issuance and a positively sloping yield curve. It could also look at refinancing existing short dated debt with long-dated index-linked gilts as they come due – this would also reduce the gap between demand and supply.

To summarise, issuing long-dated bonds has several advantages. Not least, the government has greater access to funding at low rates of interest, and companies have increased access to finance at short and medium durations. Pension insurers, pension funds and annuity providers would have access to the long-dated index-linked securities that best match their long-dated liabilities, thereby reducing systemic risk.

It will also therefore provide greater security for pension funds and ultimately savers. The government needs to look at this as soon as possible.

John Fitzpatrick is a member of the Association of British Insurers’ Bulk Insured Pension Forum

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Jay Shah among panellists who are discussing whether 2008’s template for securing liabilities with insurance companies will work for the coming year and whether most DB scheme assets will move to lower risk investments.

The panel

Chairman: Dominic Grimley, Hewitt
Grimley manages the bulk annuity broking team advising Hewitt clients. He is a qualified actuary and FPMI, and has been working in the pensions industry since 1991, the last six years being with Hewitt. He is also a scheme actuary for a wide range of clients and co-ordinates Hewitt’s trustee consulting services in Birmingham, and their wind-up advisory services.

Hugo James, sales development director, Bulk Annuities, Legal & General
Based in London, James has overall responsibility for Legal & General’s sales in the bulk annuity market. He is focused on helping develop solutions and structures to support larger schemes seeking to de-risk.

Nick Johnson, head of defined benefit risk management, Norwich Union
A qualified actuary, Johnson has headed up NU’s bulk annuity proposition since January 2006. He is currently working with a number of trustee bodies to develop innovative solutions to manage the transition to insured benefits.

Myles Pink, business development director, Paternoster
Pink is responsible for new business generation, negotiation of commercial terms, devising product structures and trustee/ adviser relationships at Paternoster. Pink advised on the initial fund raising for Paternoster in early 2006. Before this he worked in investment banking at Hawkpoint Partners and Goldman Sachs.

Andy Reed, director, defined benefit solutions, Prudential
Reed is currently responsible for innovation within Prudential’s defined benefit solutions, developing new routes to market and led the transaction to secure the first insured £1bn pensioner buy-in (with Cable and Wireless) in September 2008.

Margaret Snowdon, operations director, Lucida
Snowdon joined Lucida from The Pensions Practice Ltd, a specialist pensions consultancy firm she set up in 2003. Prior to that she was a partner with Towers Perrin, where she was European head of HR and pensions technology consulting.

Jay Shah, partner, Pension Corporation
Shah was previously at PricewaterhouseCoopers as an actuarial adviser and then as director in the corporate finance unit. He joined Prudential in 2003 as corporate development director and led Prudential’s innovations in the large bulk annuity transfer market prior to setting up a separate bulk annuity venture, now part of Pension Corporation.

 

GRIMLEY: Is the vivid investment market experience of 2008 a good advert for securing liabilities with an insurance company, or has it left a raft of other investment opportunities for longer term investors such as pension funds to exploit?

JAMES: While current market conditions theoretically offer attractive long-term opportunities in those asset classes that have been severely affected by the market turmoil of 2008, the timing and level of these returns is in no way certain. Trustees and finance directors who have seen significant deficits created during 2008 will, inevitably, be asking themselves whether pension funds are the appropriate vehicles for them to be taking such risks in the future.

For those unwilling or unable to move to full buyout then there remains a good opportunity to partially de-risk schemes by securing a tranche of members’ benefits through a buy-in.

JOHNSON: Any additional risks or increased awareness of risks, within a pension scheme increases the attractiveness of securing liabilities. As ever, any decision to secure liabilities has to balance the additional security provided by a bulk annuity with a well capitalised insurance company with the apparent affordability of doing so. Affordability being largely driven by the impact that uncertainty in investment markets has had on buyout premiums relative to funding levels of pension schemes. It is fair to say that increasingly trustees are seeing bulk annuities as a tool to be used as part of an ongoing investment strategy, rather than as an “end-game” in itself.

PINK: By securing a bulk annuity policy, not only does a pension scheme gain access to the skills required to manage inflation, interest rate and credit risks but also the expertise required to project the cash flow requirements of the pension obligations. In managing both asset and liability risks and by pledging significant amounts of their own shareholders’ equity as security, insurance companies provide schemes with a very much more attractive offering for managing longterm annuity risks than other investment strategies.

Nonetheless, last year the value of many asset classes fell and this may well have led to a number of investment opportunities for pension funds. Among those that are likely to deliver long-term investors the best risk/reward profile is a cash flow-matched, “buy and hold” corporate bond investment strategy. Indeed some commentators argue that now is the best time for over a decade to enter into such a strategy at today’s pricing levels. However, as insurers manage their assets in this way, an annuity policy may represent good value!

REED: The investment market experiences of 2008 highlighted the severity of investment risks faced by UK defined benefits pension schemes. For many schemes, this has been a real wake-up call, demonstrating both the volatility of funding levels in such scenarios and the downside risk of pensions investing in return seeking assets. It has also exposed the dangers to corporate sponsors now under pressure to provide deficit payments. We feel the extent of market volatility experienced can only serve to increase the demand for risk management solutions offered by trusted and financially secure insurers such as Prudential.

We do not think many trustees will be setting an investment policy that increases their exposure to risk, at a time when most funding valuations reveal a significant deficit – unless supported by significant financial guarantees from a well capitalised sponsor.

SHAH: Trustees should be looking to secure the pension entitlements of members rather than making speculative investment decisions. The volatile investment markets of 2008 have emphasised the significant risks inherent in managing pension schemes and hence should increase the attractiveness of securing those risks with pension insurance providers. The need for full-time management of market risks combined with the ability to make rapid decisions is now greater than ever, which increases the governance burden on those responsible for securing pension entitlements. An FSA-regulated insurance company is a very secure home for pension entitlements, particularly when markets are volatile.

SNOWDON: The volatility seen in 2008 is a good advert for insurance. It has demonstrated how tough it is running a final salary scheme, particularly with the significant fall in asset values. Trustees and scheme members are nervous and therefore vulnerable to pressure to change investment strategies on the hoof.

Last year saw the emergence of a new type of risk – “regret risk” – experienced by a number of schemes who contemplated buyout with an insurance company, but missed their opportunity before markets fell. Insurance companies manage their investment risks on a daily basis and are often in a better position to respond to small changes before it is too late. This year will see many schemes working with their advisers to effectively position the scheme to take advantage of the buyout opportunities available. The successful schemes will be the ones that do their homework early and secure a good deal in the first half of the New Year.

GRIMLEY: When surveys are made of employer opinion, a substantial proportion tend to see a bulk annuity transaction as likely to occur in their scheme over the next few years. Do you expect a substantial proportion of DB scheme assets to move to lower risk investments and ultimately to move to bulk annuity firms in the next few years?

JAMES: We believe the market volatility of 2008 will continue to focus the thoughts of trustees and sponsoring employers alike as to what risks they should hold within their DB schemes and continue the de-risking trend.

The speed at which the de-risking trend continues to build will also be driven by economic conditions and any recovery of the equity and property markets.

JOHNSON: A move to a lower risk, matched portfolio has always been a feature of most investment strategies for schemes with a long-term view for securing bulk annuities. Historically, the assets backing a pension scheme following a liability-matched portfolio could reasonably be expected to be transferred in-specie to a buyout provider to meet some, or all, of the bulk annuity premium; the small amount of risk associated with rebalancing this portfolio to meet the insurer’s view of suitable assets could reasonably be absorbed within the transaction costs loaded into the premium.

The recent turmoil in financial markets has meant that the extent to which a matched portfolio needs to be rebalanced, and the risks associated with this have substantially increased. Therefore, we see an increasing number of trustees looking to engage with a suitable buyout provider to ensure any investment strategy is appropriate for the scheme in both an ongoing situation and for any subsequent in-specie transfer to a bulk annuity provider.

PINK: We do expect such a move. Providing long-term defined benefits to pensioners has been correctly recognised as the serious and significant obligation that it is. Corporate sponsors and trustees have recently seen that high-risk investment strategies combined with insufficient prudence in forecasting how long members will live are more costly than low-risk strategies that match asset and liability cash flows using sophisticated mortality assessment and inflation and interest rate hedging techniques.

As sponsors and trustees assess mortality and investment risk, financial strength and the funding requirements, many are embarking on a programme of de-risking. This often initially involves them buying an annuity policy in respect of pensioner members, perhaps with a guarantee on the mortality basis to be used for adding future retirees over a number of years. In time, the sponsor may also choose to transfer the deferred member liabilities.

In light of the current recessionary environment many pension scheme trustees will seek to ensure greater security for scheme members, particularly if they are concerned about their sponsoring employers’ long-term business prospects. In some cases this will lead to additional contributions and contingent assets, while others will seek the safe haven of a bulk annuity policy.

REED: We are certainly seeing a strong pipeline of schemes expressing an interest in de-risking solutions with a strong provider. However, there are many factors to take into consideration when predicting anticipated levels of bulk annuity business over the next few years. While we expect the desire to de-risk through insurers will continue to grow, a drop in funding levels may put such transactions out of reach for many schemes.

In spite of this we still feel there will be an increased volume of pension schemes embarking on risk management exercises in 2009. In particular, we believe that schemes will be targeting insurer buyout within a fixed timeframe. The affordability and hence the pace of such developments will be partly governed by insurers’ prices (among other factors subject to market conditions, longevity expectations and underlying legislation) and market capacity, governing how much risk the market actually has the appetite and capacity to transfer.

SHAH: To answer the question in a word, yes. Employers will look back over the past few years and see there were opportunities to significantly de-risk the pension liabilities they face, at an affordable price. The past few months have demonstrated the potential costs of not de-risking and the benefits of having a low-risk approach. Pension insurance represents the best way of completely removing pension scheme risk and it is not surprising that a majority of employers see this option as the ultimate goal for the pension scheme.

SNOWDON: Buyout is the endgame of almost every closed DB scheme – it is only a question of when. For the vast majority of schemes, it makes sense to plan for this sooner rather than later, and part of such a goal will be to position the investments to transition to insurance. This is sensible. Some schemes have already started this process and will be able to move to buyout relatively swiftly, others are behind the wave, but no less motivated to get there.

Some buyout companies are keen to work with trustees to help them position for future buyout and we will see a number of schemes transact very swiftly when trigger points are reached. The next few years will show a steady flow of buyouts as schemes reach the optimal state for buyout and as employers decide to remove volatility for good.

GRIMLEY: Two emerging trends in 2008 were increasing asset diversification and an increased focus on being ready to implement a bulk annuity purchase in future. Are these conflicting objectives?

JAMES: The two objectives need not conflict. Firstly, one of the reasons for a diversified investment strategy is to protect against performance risk. A bulk annuity policy provides a perfectly matching asset. By providing a cashflow that perfectly matches the insured member profile, trustees can be confident the asset they are acquiring will provide the required cashflows of the scheme. Insurers achieve this through conservative investment strategies and holding a diverse range of investments.

Secondly, a diversified investment strategy reduces counterparty risk. A bulk annuity policy provides an absolute obligation to pay backed by a regulated entity. Insurance companies are required to carry substantial reserves to back these obligations and will often hold additional surplus assets and access to further funding to support their commitments. In assessing this risk, trustees need to consider both the current financial strength of a bulk annuity provider and, more importantly, its likely future financial strength.

JOHNSON: We see these two trends as part of a much greater trend of pension schemes adopting a longer-term and holistic risk management strategy that recognises the value of a bulk annuity as and when appropriate for the scheme. As with many investment decisions, it is getting the balance of two driving factors right for a particular scheme that is important, and recognising that the balance point will change over time.

It is also worth noting insurance companies have the same attraction to holding diversified assets as pension schemes, so these two objectives need not conflict. This is another area where we see pension schemes and insurers working ever closer together to ensure they have a common understanding of each other’s requirements well in advance of any transaction.

PINK: Diversification across a broad range of corporate bonds is likely to be closely aligned to the investment strategy of insurers and therefore diversification is not necessarily in conflict with buyout.

However, certain schemes may diversify into asset classes such as property or more exotic actively managed funds. If a scheme does move away from a matched fixed income portfolio it may impede the scheme in being able to move quickly to a buyout.

REED: These are not necessarily conflicting objectives for those schemes actively moving towards implementing a bulk annuity transaction. Being ready to implement implies having assets that an insurer would happily take on through an in-specie transfer. All insurers need to satisfy diversification criteria set by FSA requirements therefore a level of diversification within asset transfers would be seen as beneficial by many insurers.

We are, of course, discussing diversification of matching assets, as opposed to return seeking assets which we would not consider as suitable investments for matching annuity business. Clearly, those schemes who do not intend to transact a bulk annuity in the near future will deploy a different diversification strategy, depending on their own risk appetite and that of the sponsor who, of course, ultimately funds any investment shortfall.

SHAH: The objectives are not conflicting. Increasing diversification will reduce risk for pension schemes (provided the profile of assets and liabilities remain matched) and should provide a more certain path to an eventual bulk annuity transaction, which, if implemented as a buyout, will remove those risks altogether. Even if the pension scheme holds an insurance policy as a buy-in, the assets underlying the insurance policy are typically low risk, well diversified and protected by substantial additional solvency margins calculated to allow the insurance policy to withstand extreme market movements.

SNOWDON: Both approaches indicate a desire to reduce risk. Many schemes would love to be able to buyout immediately to guarantee a reduction in the risks they face, but in the absence of being able to do so, feel that they must take action rather than wait and see what happens. Diversifying is one way to spread the risk, by (in theory) allowing trustees to maintain a portfolio over a wide range of assets on the assumption that the good performers will smooth out the not so good ones.

However, diversification still leaves the risks with the trustees and it is a challenge today to know what investments are right for the short, medium and longer term. It is more important than ever to consider your risk objectives fully before revising your investment strategy. If trustees want to be in a position for buyout, then we, and their advisers, can help them to construct a portfolio that will be much more attractive for buyout at a future date.

GRIMLEY: In the last few months of 2008, a lot of transactions stalled because of the risks associated with transacting large volumes of assets, in particular corporate debt, in illiquid markets. Do you see this issue easing in the coming months, leading to a flow of new transactions where pentup demand to trade had built up?

JAMES: While there was much press speculation concerning the ability of trustees to transact in the final months of 2008, the final quarter is likely to be proved to be another successful quarter for the bulk annuity market with more than £1.5bn of transactions likely to be reported for the quarter.

That said, selling significant portfolios of assets was a tricky and volatile exercise. At Legal & General we saw increased focus on which assets could be accepted by insurers in specie, with the scheme being credited with the mid value of the assets. This enabled several schemes to transact that may otherwise have been unwilling to proceed during a period of market uncertainty.

We see confidence in transacting continuing to return as we enter 2009 but with trustees and their advisers having a greater focus on the assets held by schemes as they go into the buyout process.

While the confidence to transact is likely to return, the wider economic conditions that sponsoring companies are now facing may act as a balancing factor with employers potentially less willing or able to make substantial additional contributions to their pension schemes. These factors are likely to support the current trend towards buy-in rather than buyout.

JOHNSON: Recent conditions have, undoubtedly, been extreme but we have seen a number of reasonably sized transactions successfully complete in the last quarter of 2008. While we don’t expect any significant improvement in investment markets in the near future, we believe the number of transactions will pick up over the next few months, particularly for those insurers that have demonstrated that they can manage transaction risk in these difficult times.

In addition, we see a number of pension schemes working with insurers to actively manage their portfolios so that an in-specie premium can be paid and the insurer can minimise any allowance in the premium for the uncertainty of transitioning costs.

PINK: We see this issue easing. Affordability is a key issue for corporate sponsors and trustees considering entering into a buy-in or buyout and concerns about over-paying for bulk annuity policies in illiquid markets have led to a number of transactions stalling.

However, for a large number of pension schemes, the issues have been carefully worked through and there will be significant pent-up demand following modest recoveries in asset valuations. Once price volatility reduces it is expected that a number of transactions will occur quickly.

REED: We certainly expect an increased flow of enquiries, due to high demand. What is harder to answer is exactly when there will be an increase in transactions completing. It is clearly very difficult for either party to finalise a transaction in volatile market conditions where the price of either the underlying assets or those which the insurer intends to trade into at the time of transfer may be uncertain.

Once the market has stabilised (and we have little feel for when that may be), we believe transaction volumes will visibly rise. Naturally, this will not be as big an issue for a scheme that has been preparing to transact and already holding a portfolio of assets that an insurer would also hold within its portfolio. Ultimately, this may depend greatly on the strength of the sponsoring employer covenant following the financial turmoil.

SHAH: Pension Insurance Corporation was able to undertake the largest ever pension scheme buyout in December 2008, which involved a substantial transfer of corporate bonds. We do not view the current market conditions as a barrier to transacting. The main issue will be that those pension schemes with substantial equity exposure will have seen their funding levels reduce compared to this time last year.

SNOWDON: The end of 2008 saw transactions slow for a number of reasons. Primarily, trustees reacted negatively to falling fund values and stepped back from negotiations while they waited to see what would happen next. For some schemes, the delay has only served to increase the funding gap further and now they have no alternative but to seek another route or simply bide their time. Many others, however, could work with an insurer like Lucida to structure a buyout deal to fit their circumstances over time.

Secondly, trustees had been taking comfort from the regular valuations provided by their investment managers, reasonably assuming that if the investment manager could quote a price, the assets could be sold.

However, when it came to physically selling, no one wanted to buy. Sharing asset listings fully with insurers well in advance of a transaction can avoid this problem. Again, some of the insurers can help schemes structure deals to optimise the fund and minimise the transaction risk.

The better prepared trustees and employers are for buyout, the easier it is to get a deal done. Due diligence on your own scheme, your member data and investments is time well spent. Education of trustees about the buyout market and how insurers work is vital. Instead of treating the insurers like simple sellers of widgets, a partnership approach is one that helps get the right deal at the right time with the right outcome, rather than simply the cheapest commodity around.

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Pension Corporation, a leading insurer of defined benefit pension schemes, today announces that the Trustee of Leyland DAF Pension Scheme, Aon Trust Corporation, has accepted a proposal to insure its benefits with Pension Insurance Corporation (“PIC”). In return for insuring the liabilities of the scheme, PIC will receive assets amounting to approximately £230 million. The scheme has almost 5000 members.

Aon Trust Corporation was appointed as an independent trustee to the Leyland DAF Pension Scheme in 1993. The scheme was closed to new members in 1994, the sponsoring company went into liquidation in July 1996 and the scheme has in recent years secured substantial benefits with the state pension scheme and commenced winding-up. Recently the Trustee concluded that pension buyout offered the best way of de-risking the scheme given the current market conditions and for the long term.

The Trustee accepted the proposal from PIC on the basis of its capabilities, competitive pricing and transactional flexibility. Hewitt advised the Trustee on the buyout and provided Scheme Actuary services and KPMG provided advice on the scheme’s investment strategy.

As a part of the winding up process, the Trustee will be assessing the level of surplus and considering how best it can be used by the scheme members, including the amount of any benefit improvements.

Oliver Rowlands, a Director of Aon Trust Corporation, said:

“I believe that Pension Insurance Corporation offers the best opportunity for us to derisk the pension scheme given the current market conditions, offering the best level of security for the members’ benefits, and I am therefore delighted that we were able to conclude the pension insurance buyout with them.”

Dominic Grimley, who manages bulk annuity broking at Hewitt Associates, said:

“This has not been a straightforward deal, given the complexities surrounding the entitlements in the scheme. We have been very impressed with PIC’s positive and helpful approach to finding the best solution for the scheme members. We strongly believe that the buyout market offers an opportunity for companies to manage their pensions risk. Timing and market volatility play an important role, but we are confident that further tailored insurance deals will develop in 2009.”

Simeon Willis, Executive Consultant of KPMG Investment Advisory, said:

“Controlling risk has been a key factor for the scheme given the lack of solvent sponsor. In June 2007, the trustee made a wholesale switch from equities into bonds thereby insulating the scheme from subsequent equity market falls. Involving PIC now completes the de-risking programme which has always been focused on maintaining security of members’ benefits”

John Coomber, Executive Vice Chairman of Pension Corporation, commented:

“We are delighted to have had our proposal accepted by the trustee of this scheme. Leyland DAF is an extremely well known name in this country with a proud working history and we know the scheme members will expect the highest level of security for their retirement benefits, which we aim to provide.”

Edmund Truell, Chief Executive of Pension Corporation, commented:

“We are pleased to have concluded our third pension insurance buyout in a very short period, including the largest ever, which involved the settlement of £1.1bn of pension liabilities. Once again a Pension Corporation insurance buyout will mean improved security and stability for scheme members and may result in benefit improvements, following the winding up process. We look forward to completing further deals throughout 2009.”

For further information

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Financial Dynamics
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

About Pension Corporation

Pension Corporation removes pension risks from the sponsors and trustees of defined benefit pension schemes. As a market leader it is the counterparty to risks ranging from full buyout to longevity risk insurance, scheme stewardship and asset-liability management. It provides increased levels of security and stability for scheme members through Pension Insurance Corporation Ltd (“PIC”), a fully authorized and FSA-regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). Pension Corporation is backed by a range of financial services firms including J.C. Flowers, Royal Bank of Scotland, Swiss Re and JP Morgan. For further information please visit www.pensioncorporation.com

About Aon Consulting

Aon Consulting Worldwide is among the top global human capital consulting firms, with 2007 revenues of US$1.352 billion and more than 6,000 professionals in 117 offices worldwide. Aon Consulting is shaping the workplace of the future through benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006, 2007 and 2008. For more information on Aon, please visit http://aon.mediaroom.com

About Hewitt Associates

For more than 65 years, Hewitt Associates (NYSE: HEW) has provided clients with best-in-class human resources consulting and outsourcing services. Hewitt consults with more than 3,000 large and mid-size companies around the globe to develop and implement HR business strategies covering retirement, financial and health management; compensation and total rewards; and performance, talent and change management. As a market leader in benefits administration, Hewitt delivers health care and retirement programmes to millions of participants and pensioners, on behalf of more than 300 organisations worldwide. In addition, more than 30 clients rely on Hewitt to provide a broader range of human resources business process outsourcing services to nearly a million client employees. Located in 33 countries, Hewitt employs approximately 23,000 associates. For more information, please visit www.hewitt.com.

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Pension Corporation, a leading insurer of defined benefit pension schemes, today announces that the Trustees of Merchant Retail Group Pension Scheme, a member of the A.S. Watson Group, have accepted a proposal to insure its benefits with Pension Insurance Corporation (“PIC”).

The Trustees, following a proposal from the sponsor to offer the fund for buy-out, concluded that the members’ best interests were served by agreeing to insure the benefits with PIC.

The Trustees, and KPMG as advisers to the Sponsor, were particularly impressed by the speed, transactional flexibility and certainty around pricing that PIC was able to display in concluding the deal in a short timeframe. In addition, the conservative Asset and Liability Management portfolio proposed by PIC will mean members’ benefits are secured for the very long-term. Pension Insurance Corporation is fully authorised and regulated by the FSA.

David Wadham, as Chair of the Trustees, said:

“I believe that Pension Insurance Corporation meets our members’ needs for security for the future, and on that basis I am delighted that we were able to appoint them.”

Gill Smith, Finance Director at Merchant Retail Group, said:

“We have been impressed by the way in which PIC was able to conclude the deal in a very short timeframe, with certainty around the pricing.”

Linda Bell, Senior Manager at KPMG said:

“This has been an innovative deal and PIC’s flexibility, responsiveness and pragmatic approach were key in making this happen.”

John Coomber, Executive Vice Chairman of Pension Corporation, commented:

“We are happy that we were able to meet the needs of the Trustees and offer the scheme members increased levels of security. This is the second pension scheme PIC has insured in as many weeks, including the largest ever, and we look forward to completing more buy-outs in our full pipeline for 2009.”

Enquiries

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Financial Dynamics
Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

Keren Perrott
+44 (0)20 7269 7218

About Pension Corporation

Pension Corporation removes pension risks from the sponsors and trustees of defined benefit pension schemes. As a market leader it is the counterparty to risks ranging from full buyout to longevity risk insurance, scheme stewardship and asset-liability management. It provides increased levels of security and stability for scheme members through Pension Insurance Corporation Ltd (“PIC”), a fully authorized and FSA-regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). Pension Corporation is backed by a range of financial services firms including J.C. Flowers, Royal Bank of Scotland, Swiss Re and JP Morgan. For further information please visit www.pensioncorporation.com

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Pension Corporation, a leading insurer of defined benefit pension schemes, today announces that the Trustee of Thorn Pension Fund has accepted a proposal from Thorn Limited to wind up the Fund and to insure its benefits with Pension Insurance Corporation (“PIC”). This is the largest ever UK pension insurance buyout involving the settlement of £1.1bn of pension liabilities and the securing of benefits for over 15,000 scheme members.

The Trustee satisfied itself that insuring the benefits with PIC provides increased long-term security to the Fund's members. In addition, the terms negotiated by the Trustee will mean an uplift of around 5% to the members' benefits.

Aware of the volatility in the markets during 2008, the Trustee explored the possibility of annuitisation as a means of protecting members’ benefits for the very long term. As a result, the buyout was secured following an open, competitive process held by the Fund’s Trustee and its advisers, during which the Trustee considered the various options available.

The buyout means that Pension Insurance Corporation will in due course provide an individual policy to each member, preceded by a bulk policy written in the name of the Fund's Trustee. Pension Insurance Corporation is fully authorised and regulated by the FSA.

Chris Martin, of Independent Trustee Services Limited, as Chair of the Trustee, said:

“After an extremely competitive process of considering all the options for enhancing member benefit security, the Trustee is delighted to have appointed Pension Insurance Corporation as its partner for the provision of bulk annuities. At a very challenging time in the investment markets, Pension Insurance Corporation was able to protect members' final salary benefits while also providing a financial uplift. The Trustee believes that this buyout represents the best overall outcome for the Fund’s members.”

Andrew Gurnham, Director of Thorn Limited, said:

“Thorn is delighted that members’ pension benefits have been secured through this insurance agreement and, coupled with increased member entitlements, believes this deal is the best possible outcome for the group’s former employees. Thorn is also pleased to have removed any uncertainty about its future pension liabilities in the light of current volatile market conditions. The company would like to thank the Trustee board for managing the transaction in a highly professional manner.”

John Coomber, Executive Vice Chairman of Pension Corporation, commented:

“Pension Insurance Corporation has a commitment to excellence which allowed it to offer an innovative solution which stood out in a competitive process. We are delighted to have been chosen on that basis.”

Edmund Truell, Chief Executive of Pension Corporation, commented:

“We are pleased to have concluded this pension insurance deal, the largest ever. Also, we are delighted to be able to insure, as part of the buyout, enhanced benefits to the Fund's members. Pension Insurance Corporation has a risk-averse asset and liability management approach; this has earned its spurs in these challenging markets and kept us at the forefront of the industry.”

Enquiries

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Financial Dynamics
Nick Henderson
+44 (0)20 7269 7114

Alex Boycott
+44 (0)20 7269 7272

About Pension Corporation

Pension Corporation removes pension risks from the sponsors and trustees of defined benefit pension schemes. As a market leader it is the counterparty to risks ranging from full buyout to longevity risk insurance, scheme stewardship and asset-liability management. It provides increased levels of security and stability for scheme members through Pension Insurance Corporation Ltd (“PIC”), a fully authorized and FSA-regulated insurance company; and Pension Corporation Investments LP Inc. (“PCI”). Pension Corporation is backed by a range of financial services firms including J.C. Flowers, Royal Bank of Scotland, Swiss Re and JP Morgan. Funds under the Pension Corporation umbrella currently total almost £5 billion. For further information please visit www.pensioncorporation.com

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David Collinson among panellists who are discussing dealing with financial volatility, how it has changed trustees’ approaches to assessing financial strength, and how the market will function without guaranteed quotes. Finally, the panel look back at the year to discuss how the market has developed compared to their expectations, and make their predictions for 2009.

The panel

Chairman: Clive Wellsteed, partner, Lane Clark & Peacock
Wellsteed is a partner on LCP’s buyout advisory team, advising on some of the defining buyouts of 2007. He is a regular conference speaker and commentator on the buyout market, with a decade of experience at LCP.

David Evans, business development director, bulk annuities, Legal & General
Evans is a qualified actuary based at Legal & General’s office in Surrey. His focus is on product development, pricing and the marketing of the company’s bulk annuity products. Evans joined Legal & General in 1996.

Tony Read, product development manager, Aegon Trustee Solutions
Read is responsible for the design and implementation of new products and services. AEGON Trustee Solutions is a leading provider of bundled defined benefit scheme solutions.

Margaret Snowdon, operations director, Lucida
Snowdon is a fellow of the Pensions Management Institute and a past vice-president. She is a fellow of The Pensions Advisory Service as well as chairman. Snowdon speaks at conferences and is a frequent contributor to pension journals.

Andy Reed, director, defined benefit solutions, Prudential
Reed is a qualified actuary with over 20 years’ experience in UK insurance. Having implemented various significant bulk transactions, Reed is currently responsible for Prudential’s innovation within the DB market.

Mark Wood, chief executive, Paternoster
Wood held a number of senior positions in the financial services industry (including chief executive, Axa UK and chief executive, Prudential – UK and Europe), before setting up Paternoster in December 2005.

Nick Johnson, head of defined benefit risk management, Norwich Union
A qualified actuary, Johnson has headed up NU’s bulk annuity proposition since January 2006. He is currently working with a number of trustee bodies to develop innovative solutions to manage the transition to insured benefits.

David Collinson, partner, Pension Corporation
Former global head of M&A services at Watson Wyatt, Collinson has 19 years’ experience in actuarial consultancy and transaction services. David became a partner with Watson Wyatt in 1993.

 

WELLSTEED: Who has been better placed, pension funds or insurers, to deal with the financial volatility of the past few months?

EVANS: Insurers have been better placed to deal with the unprecedented recent levels of financial volatility. This is because, rather than funding pension schemes to a best estimate level, insurers fund to a far more prudent level, and then hold significant additional reserves on top of this. These reserves allow insurers to invest in matching bonds and swaps of appropriate duration in the knowledge that the balance sheet is strong enough to cover mark to market movements in both the assets and the liabilities. This balance sheet strength ensures that insurers are not forced to sell assets in a distressed state.

Insurers also generally have access to a wider and more diversified range of assets than pension schemes, who will typically invest in UK gilts and bonds. This increased diversification means, for instance, that Legal & General has not been particularly exposed to the current travails of UK banks. There are other assets that insurers have access to, or the scale to invest in, that most pension schemes would not, which further helps to diversify the insurers risks.

Trustees, as well as monitoring the solvency of the pension scheme, must consider the covenant of the sponsoring employer. Most industries are struggling or expected to struggle in this economic downturn. Insurers, on the other hand, are generally seen as a comparative “safe haven” with their cautious business models.

READ: The answer depends on the specific circumstances of any given employer and pension fund. However, I would argue that there are a number of things that place insurers, in general, in a better position to withstand market volatility. Firstly, insurers start from a position where they necessarily hold surplus capital above that required to meet their liabilities as a requirement of the regulator, ratings agencies and their own business models. This capital is set up as a buffer against many different risks, of which market volatility is just one.

There is also the question of raising additional capital, should it be required. Although capital is generally more expensive in today’s market, insurers do have a range of options from which to raise such capital, while a pension fund is generally dependant on one employer who is likely to be facing additional pressures given the current economic environment.

SNOWDON: Insurers and pension funds are both exposed to financial volatility. All but the most cautiously invested will have found that the value of their assets has fallen by more than the value of their liabilities due to falling bond prices. However, insurers are required to match assets and liabilities and so are generally less exposed to financial volatility than many pension funds. Both invest for the long term though, and we should not lose sight of this since much of the fall in asset values is a result of a lack of liquidity rather than a reflection of the underlying fundamentals.

The deterioration in pension funding levels will have caused considerable anxiety for schemes and if anything makes buying-out pension scheme liabilities even more attractive to trustees and employers (albeit that the recent falls in funding levels make this less affordable).

REED: While some influencing factors may have a greater impact on either pension schemes or insurers, this does not necessarily mean there is a simple divide between the two. Instead, the situation will greatly depend on where each specific fund or insurer is invested and the level of exposure they have. The FTSE drop will have a greater impact on those schemes mainly using equities to back the scheme. Additionally, sponsors may be less likely to enhance pension scheme funding in current market and economic conditions, so schemes will be affected by the weakening of sponsoring employer covenants.

WOOD: Fundamental to our investment strategy at Paternoster is that we only invest in long-term bonds to meet the requirements of paying pensions. By their nature, the value of these has been less affected by recent market volatility than, for example, equities. It follows therefore that schemes that have de-risked into gilts and high quality corporate bonds will have fared better recently than those with significant equity exposure.

Importantly however, and unlike a company pension scheme, an insurer’s promise to pay pensions is fully funded and backed by additional solvency capital.

Many scheme trustees will now be more concerned about scheme funding, as many schemes’ asset values have fallen and the outlook for corporate sponsors has deteriorated. It is likely that fewer schemes will be able to afford buyout as an option in the short to medium term, but for those that can afford it there will be a stronger desire as the recent markets have served to highlight the risks.

JOHNSON: As with any significant shock event, the degree to which liabilities are matched, the level of prudence included within the valuation basis, and the ability to manage and diversify risks, effect the extent to which underlying assets and liabilities will diverge.

Almost by definition, the economies of scale and expertise that a large well-established insurer will employ on a day-today basis should give it a substantial advantage over even the best run pension schemes.

COLLINSON: The financial volatility has impacted both sectors, but in different ways. Wild swings in asset markets and unpredictable inflation levels mean that sponsors and trustees have seriously started to review de-risking solutions.

The increasingly sophisticated ALM techniques used by insurers, including the use of reinsurance, swaps and asset strategies, combined with the frequent mark to market of their positions, have given them the tools to ride out the worst of the storm engulfing the markets. For example, Pension Corporation has had a very high allocation to gilts and cash for much of this year, as well as very close matching of interest rate and inflation exposure.

WELLSTEED: Have you seen a change in trustees’ approaches to assessing your financial strength since the onset of the financial crisis? Should trustees be concerned about your financial strength in light of rising default rates on corporate bonds and falling insurer solvency margins?

EVANS: We are seeing far more questions on financial strength from trustees, their advisers, and even from annuity customers. Fortunately, with the strength of our balance sheet, and our diversification of business risks, we are able to set our clients’ minds to rest.

Trustees should be extremely mindful of financial strength when deciding which insurer to buy out with. Buyout is typically a “once and for all” decision and so it is important that the trustees can feel confident well into the future with the decision that they have made.

Trustees should be concerned about default rates on corporate bonds, particularly if the global economy goes into a deep recession, as predicted. The trustees should pay particular attention to the assets that insurers are using to back their pension liabilities in terms of credit rating and level of diversification. Most insurers, through their investment functions, have teams of professionals who, on a daily basis, are analysing the risks being faced by corporates. This active management of the bond portfolio has, in Legal & General’s case, meant that our default experience has been lower than the markets in the past and, of most relevance, significantly lower in recent times.

The most appropriate measure of financial strength is the IGD surplus, which reflects unencumbered free assets at a group level. In Legal & General’s case we had an IGD surplus at the end of September 2008 of £2.9bn, the highest of any bulk annuity provider, and a significant buffer given the size and maturity of our liabilities. Based on detailed recent reviews by the rating agencies, Legal & General has retained its AA+ credit rating, albeit with a change to negative outlook.

The Bank of England has considered the financial strength of the insurance sector in its recent Financial Stability Report. This may give additional comfort to trustees that certain names in the insurance sector (particularly those with a large retail customer base) might be considered to be “too big to fail”.

READ: Yes. We have seen trustees place increasing weight on an insurers capital strength when selecting an insurer over the past year. Using ourselves as an example we have therefore been providing additional information on our capital strength and our approach to risk management to help trustees assess our financial strength. For example, Aegon Scottish Equitable is rated AA by Standard & Poor’s and the Aegon group has £8bn capital in excess of the capital required under the insurance group directive so trustees can have confidence in our ability to pay claims both in the short term and over the long period of annuity policy.

Our solvency models have a prudent allowance for defaults in corporate bonds, on top of which we hold solvency margin and ratings capital, so we have sufficient capital buffer to allow for current market conditions.

SNOWDON: As part of due diligence, trustees should always look at the financial strength of the insurer in considering a buyout and most insurers welcome this scrutiny. Our Pensions Pulse Survey released in October showed that financial strength is one of the key criteria for trustees in buyout. Lucida’s investment strategy and continuous review of markets ensures we remain in a very strong position despite the financial turmoil and we are pleased to demonstrate this as part of the due diligence process.

Aside from examining the financial strength of insurers, we are seeing increasing concern among trustees about the strength of employer covenants as credit default risk increases. This “internal” focus will increase as the recession bites, meaning that trustees not only need to think about the security of the provider, but perhaps more importantly, the risks inherent in doing nothing.

REED: Recently, trustees have been scrutinising the financial strength of prospective buyout/ buy-in providers – and rightly so. This is a complex market experiencing intense volatility, and we have seen a significant focus from trustees assessing not only financial strength, but also the expertise, capabilities and added security offered by a trusted provider, rather than simply seeking the lowest price. There has been a resulting “flight to quality” as trustees and sponsors seek greater assurance for their risk management strategies.

Prudential’s capital position remains robust and our prudent and proactive risk management approaches to capital management will allow us to withstand significant market shocks should the need arise. In particular, our Insurance Group’s Directive capital surplus of £1.2bn at September 30, 2008 is sufficient for us to remain resilient to a significant further deterioration in both market and economic conditions. The group’s liquidity position also remains very comfortable.

WOOD: As a regulated insurer we are required by the FSA to hold solvency capital appropriate to the pension obligations we have assumed, and we constantly monitor this, particularly as markets change. Trustees continue to value the security of a regulated insurance environment, but one change we have seen recently is that a greater proportion of trustees now undertake independent, professionally advised due diligence processes on all providers to satisfy themselves that they have fulfilled their responsibilities.

In theory the increase in corporate bond spreads reduces buyout cost. However, increased anticipated defaults has the reverse effect. The volatility of today’s credit markets has quite naturally led many trustee boards to defer the decision to buy out until market outlook, particularly for defaults, becomes more predictable.

JOHNSON: Requests relating to the financial strength of insurers have always formed part of the standard due diligence process followed by trustees. However, up until recently, the requirements placed on insurers to ensure that financial strength gets a “tick in the box” have felt like a formality for any regulated insurer, or large financial institution.

Recent events have served to prove that nothing can be taken for granted, and there has been a clear shift away from trustees asking “what is the lowest price that a strong insurer offers” to asking “what is the strongest insurer that can transact for an affordable price”.

In fact, rising corporate bond default rates and fears of falling solvency margins have only served to remind trustees that the fortunes of even apparently strong organisations can change over the long run. We must remember that these transactions will see pension payment commitments continuing for well in excess of 50 years; over timescales like this a lot can happen.

COLLINSON: Trustees have always wished to satisfy themselves as to the financial strength of potential counterparties and the recent economic turmoil has increased the focus on this aspect of a bulk annuity transaction.

However, trustees should perhaps be more concerned about the financial strength of their scheme sponsors and might want to start thinking about how they can derisk their balance sheets, transferring liabilities to well capitalised companies that have a stringent ALM approach as their primary focus. We have always taken this view and consequently Pension Corporation is a strongly capitalised business, and we have just announced a further round of fundraising to support future growth, anchored by an initial investment from JP Morgan.

WELLSTEED: Most insurers stopped providing guaranteed quotations following the collapse of Lehmans and, for many, this continues to be the case. Do you think the market can function efficiently without guaranteed quotes?

EVANS: Legal & General are still prepared to offer guaranteed quotations and still do, as a matter of principle, for smaller schemes. The guarantee covers all pricing assumptions apart from financial conditions. Legal & General is still transacting business in this environment and is prepared to give short-term guarantees of the price in respect of pre-determined baskets of stocks.

I believe the market can still function without guaranteed quotations, although the timescales for buyout will be elongated as a result.

READ: Some insurers will still provide a guaranteed quote (indexed by yields). In some circumstances we are still happy to provide a fixed price quote based on receiving funds within a set time period. In general terms, a market without guaranteed quotes makes decisions more difficult for trustees and sponsoring employers, both in comparison of different quotes and to have the right funds in place to secure the terms on offer. Insurers are seeking to protect themselves against market risk and I expect that when credit markets have less inherent volatility, guaranteed quotes will again become a feature of the market as insurers compete for new business.

SNOWDON: Lucida continues to offer guaranteed quotes. The fact that some insurers are withdrawing or not offering guaranteed quotes will make it difficult for trustees to lock in prices in order to avoid being at the mercy of market fluctuations. Speed of transaction is therefore more important than ever, as are flexible and imaginative solutions to help trustees and companies get rid of risks in the most effective and efficient way.

REED: My answer to the question is, quite simply, no! Current market conditions make it extremely difficult for any provider to offer fully guaranteed quotes, linked to the real value of assets, without potentially taking undue risk. And without guaranteed quotes, trustees are highly unlikely to proceed with any deals. While there is still evidently a real desire for schemes to de-risk, we have seen a slow down in activity across the market, as insurers, sponsoring employers and trustees alike take stock of market conditions, the impact on scheme funding and the associated risks. Many deals are likely to be delayed until 2009, in the hope that financial markets stabilise and equivalent buyout costs become more commercially viable for trustees and sponsors once again. One way trustees could obtain guarantees is by entering into exclusivity arrangements.

WOOD: Setting reliable estimates of cost, while always exacting, is in the current market fraught with difficulty. We are currently providing quotations that fix prices for all variables except investment market conditions. Trustees are content with this approach and can see the merit of preparing now and being ready to transact the moment the markets become more stable. Valuable work can still be done, particularly to ensure that data is clean, assets are in a suitable mix and that all required documentation has been agreed.

JOHNSON: For any situation where price is the main driving factor in the decision to buy out, then long-term pricing guarantees are essential for trustees wishing to transact. There is, after all, no point choosing the cheapest price unless you are certain that price will be the one you transact on.

In current climates however, where the decision trustees are making is much more akin to whether any provider can provide the level of security that is required to transact, a price guarantee is not required until a much later stage in the negotiations. Only when trustees have convinced themselves that one or more providers can provide the required security, will there be a need for guarantees.

Whether as a reflection of the above, or as a result of reduced appetite or ability for some insurers to write business, there has undoubtedly been a move towards insurers issuing non-guaranteed quotes. At this stage, we think it is important to reflect on the different approaches being adopted on these guaranteed quotes. We for one are very clear that even though a quote is non-guaranteed it represents a “transactable” price; many of the quotes we have seen issued have been based on a price that would stand if normality returned to the market.

COLLINSON: Yes, a buyout process goes through many steps and typically takes much longer than the duration in any guarantee period for a quote. The process can function quite adequately with quotes on a nonguaranteed basis.

We expect that the volatile economic situation will highlight again risks inherent in pension schemes to sponsors and trustees, and thus stimulate requests for quotes.

WELLSTEED: This will be the last panel debate of 2008. Looking back over the year, has the development of the market matched your expectations? And looking forward, what do you think will characterise the market in 2009?

EVANS: We saw a dramatic increase in the size and complexity of pension buyouts in 2008. It will be remembered as the year of the first £1bn transaction and the first FTSE 100 scheme buyout along with, of course, the “credit crunch” and all the implications this has brought. Total market volumes for 2008 seem unlikely to reach the £10bn mark that was predicted earlier in the year, yet have still shown significant growth over 2007.

It could go either way in 2009. The market could slow as a direct result of corporate funding levels having declined against the buyout cost, or the market could be extremely buoyant, with market volatility again demonstrating to corporates what a volatile liability the pension scheme is, and convincing them of the long-term merits of solving the “pensions problem”.

There remains a lot of capital to be deployed within this market, so it is likely that buyout prices will remain competitive in 2009.

READ: If we go back what to what seems light years ago – 2007 – we saw a lot of new de-risking solutions launched across the insured buy-in/buyout and other corporate areas.

At the start of 2008 I think few people foresaw the full extent of the effects of the credit crunch and so we all had high expectations of a record amount of business being written. Even in the summer general predictions were in excess of £10bn UK bulk buyout business compared with around £3bn pa for the last couple of years. Has that materialised? No.

To the end of Q3 around £6.3bn had been written. Since then we are seeing more effects of the current economic turmoil on DB schemes with deficits further increasing. My thoughts for 2009 – the move from DB to DC is still there, perhaps even accelerating, and in the SME market where we operate, for example, I see increasing demand for joined up solutions where one company can offer seamless de-risking solutions from full DB to full buyout over a number of years and eventual scheme wind up. This will increasingly include sophisticated options such as annuity pricing basis locks and other developments.

SNOWDON: The credit crunch has certainly impacted the buy out market in the short term, with some schemes finding to their cost that they missed an opportunity to transact before funding levels dropped. That said, 2008 new business volumes significantly exceeded those of 2007 and we anticipate that, after a temporary hiatus as the market stabilises, the market will continue to grow in 2009.

Buy-in will continue to be popular as a first step towards future buyout and we will see more structured and tailored solutions coming through as trustees and employers work together in response to the current financial climate. This will include a continuing movement of investments away from equities to improve asset liability matching and a focus on long-term funding strategy.

Trustees and their advisers’ confidence in buyout insurers will increase as they become more familiar with the solutions and players and observe how the best insurers respond to the economic climate. This and the need to avoid market exposure will mean faster decision making among trustees and corporates. There is likely to be increased interest in other market innovations such as longevity only solutions and phased buyout.

REED: The market certainly developed as we had anticipated until September 2008. With the inevitable shift from DB, we saw:

• The continued increase in solvent schemes reducing risks via pensioner buy-ins;
• The first syndicated deal (with Rothesay Life re-insuring £300m of the Rank pension scheme with Prudential);
• The first (and much anticipated) £1bn insured deal, between Prudential and Cable & Wireless.

Overall, 2008 market sales were on target to hit £10bn. However, few could have predicted the extent of recent international turmoil and the subsequent impact on all financial markets.

Next year will very much depend on how quickly overall financial markets settle down and how soon scheme funding levels (and sponsoring employer covenants) improve. We still see an appetite for schemes to de-risk, with larger schemes seeking specialist providers offering greater security.

However, greater caution means it is unlikely that we will see the sort of pricing that dominated the market in 2007 and early 2008. Syndication may become more prominent in 2009, as trustees seek to spread their risks, while insurers look to reduce exposure to the risks involved in a single very large transaction, in other words, £2bn+. We also expect to see further innovation, particularly around security structures, as trustees and sponsors seek cost effective ways of de-risking their pension scheme liabilities.

WOOD: The market is enjoying rapid growth with £6.5bn of transactions so far this year. Realistically we expect Q4 new business to be below previous estimates with full year market growth on last year being perhaps 300pc rather than the 400pc previously projected.

We anticipate that some of the transactions that might have taken place by the end of this year may now take place early next year. The current situation has only highlighted the risks involved in managing a defined benefit pension scheme.

Buyout remains an affordable option, particularly for pensioner only books that have derisked into bonds. In 2009 we will see the first longevity only trades and further derisking of schemes in excess of £1bn.

JOHNSON: The overall level of business written in 2008 is pretty close to the central estimate we were working towards. We also expected a gradual move away from purely price based decisions, as the market became increasingly more aware of counterparty risk. However, even the most pessimistic commentator could not have foreseen the extent of the turmoil experienced in the last quarter or the effect it would have had on many insurers appetite for business.

The number of transactions being completed in recent months has undoubtedly reduced, partly in reaction to the extreme financial conditions in bond markets, but also partly as it takes time for both trustees and insurers to react to the shift in focus away from price.

As things stand, we fully expect a number of significant deals to emerge over the coming months, with increasing activity during 2009, reflecting the greater degree of partnership that will be needed between scheme, advisers and insurers to effect successful transaction.

COLLINSON: It was always to be expected that at some point the interest in pension buyouts would increase sharply and this happened in 2008, with a record volume of transactions completing and a much higher level of requests for quotations. We expect that 2009 will see a continued upward trend in deals completed, with many of the processes initiated in 2008 coming to fruition. The market expects there to be some consolidation in 2009 among the providers.

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This year will have been especially turbulent for financial directors dealing with pension schemes. Steven Lowe & Amarendra Swarup give a sneak peek into the diary of an anonymous financial director to see what 2008 might have brought for them.

January 2008
There was lots of media discussion about the buyout market, including a news story suggesting the top 200 pension schemes lost over £40bn in surplus in just one week – wiping out all the gains made in 2007. Pensions are a long-term game, but if trustees make an investment that doesn’t work in the short term, an increase in the level of annual contributions will have to be considered.

February
Spoke with our consultant about pension risk transfer options. During Q4 2007, there were 75 pension insurance deals totalling some £1.9bn of pension liabilities, including many well-known companies. I need to understand my options.

March
I have looked into a possible buyout for the pension fund. My goals include reducing the impact on my balance sheet, controlling the demands put on my P&L by ongoing pension contributions and deciding how to take advantage of what seems to be a suddenly very competitive market place for pension risk transfer.

April
The trustee chairman seems keen on a pensioner buy-in to increase the member security and use the scheme’s strong funding position to reduce the total risk. I am in favour of reducing the scheme’s risk, but I need to understand the implications for the corporate sponsor and the potential impact on future corporate activity. The consultants’ report will give me some idea of the costs involved.

May
I have arranged a meeting with a bulk purchase annuity insurer to discuss pension risk transfer options. Pension issues are starting to rise up my agenda as the pension liabilities seem to be increasing and assets are weakening.

June
Met with the insurer to discuss the options available – some even look affordable. A buy-in or buyout of existing pensioner benefits has been a popular trade so far this year. A buy-in means the scheme keeps its liabilities and buys an annuity contract, which is held as a ‘matching asset’ to the insured liability. The trustees will like this option because it doesn’t favour one class of beneficiary over another. However, buyout – where the liabilities and assets are removed from my balance sheet – seems to make more sense to me.

July
Consultant reported back this month. Buyout looks like something the scheme can afford, without further contributions from the sponsor. I need to get together with the trustees and start a competitive tender process. We will assess the respondents on their pricing, financial security and ability to tailor a solution to our exact needs. Implementation will be key, as any solution where pension payments are transferred away from the sponsor is sensitive to employee relationship issues.

August
Have set up a pension risk transfer subcommittee with the trustees to ensure process gets the attention it requires to execute a transaction while market conditions allow. It is important to have a dedicated committee with agreed objectives to allow for a potentially quick execution.

September
A terrible month for the pension scheme. Asset prices have collapsed and I fear this will greatly limit options for risk transfer. If the economy is entering a recession and my turnover about to fall, the last thing I need is potentially higher contribution requirements for the pension fund.

October
Surprisingly, the funding position hasn’t deteriorated as much as I feared. The rise in AA spreads due to the credit crisis and potential bank collapses meant the liabilities also fell. However, some of those AA-rated names might default or be downgraded. I have opted for a partial buyout while I can afford to hedge some of my liabilities. While it will require a contribution to maintain the funding position of the scheme, I am reassured by at least one recent buyout, where the sponsor contributed £50m into its scheme and the share price actually rose.

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Today’s finance directors are often faced with the problem of maintaining a set of financial commitments made in another era, when assumptions and expectations were vastly different. These commitments are difficult to measure, let alone anticipate, and they are now tied to the health of the corporate sponsor, which is legally required to underwrite any deficit. Though their relationship in the past has resembled awkward teenagers staring mutedly across the dance floor, corporate sponsors and pension schemes can no longer choose to shyly look away. Sponsors are increasingly finding a host of unintended and poorly understood risks on their balance sheets.

As people live longer, the immediate calculable costs can rise dramatically as outdated longevity assumptions are updated. Regulatory scrutiny has also increased, with the Pensions Regulator pushing schemes to adopt more realistic mortality assumptions. Even the assets are not immune, as many UK pension schemes have more than half their assets in equities.

It’s a growing headache for many finance directors, for whom such risks often lie far from familiar territory and who are charged with looking after a broad church of stakeholders, not just pensioners. As the corporate sponsor, they have an obligation to fund these unexpected growing costs, despite having little or no say in the investment of the scheme’s assets. The waters are muddied further by sometimes out-of-date actuarial assumptions that can present a less-than-prudent valuation of the true costs of fully funding the scheme’s liabilities. The impact can go far beyond the immediate cash flow hit, filtering through to the P&L, lowering profits, increasing leverage and ultimately, impacting the share price.

This can have dramatic effects on the room for corporate manoeuver and, in the end, on the security of their pledged commitments to pension scheme trustees, existing pensioners and future beneficiaries. So how can responsibilities be met?

Insurance buyouts

One answer is to pass the risk and responsibility of meeting the pension promise to a specialist third-party pension solutions provider. A pension insurance buyout is a bulk annuity policy secured with an insurer that ensures all benefits are met in exchange for an upfront premium. Buyout, followed by a scheme wind-up, is a tried-and-tested method of attaining a complete liability discharge for the sponsor and trustees. The only risk remaining for the members is that of insurer default, and this should be mitigated due to insurance regulation, risk management and the mandatory provision of the insurer having prudent reserves to protect solvency.

It’s a win-win situation for everyone. Buyouts can often improve the situation for scheme members as these specialist companies are tightly regulated, operate within strict investment and asset liability guidelines, and are required to hold capital against any extreme losses. It also helps troubled sponsors: securing pension liabilities away from balance sheets improves their ability to raise finance and removes the situation where, in a falling equity market with a commensurate fall in the valuation of a scheme’s assets, a sponsor looking to invest in the business might also find trustees coming cap in hand.

However, this route is expensive and may necessitate a cash injection from the sponsor. This may make it unaffordable for many schemes, as their funding position is too far from buyout and their corporate covenant too weak to bridge that divide. But there are alternatives that can help trustees increase security for scheme members and eventually get them to full buyout.

The simplest way is to execute a partial insurance buyout for some scheme liabilities, such as current pensioners. This can allow a pension scheme to get to full buyout in stages and spread the cost over time, as assets and the sponsor’s finances allow. Trustees need to be careful that the premium required does not suddenly trigger a massive deficit for remaining uninsured members. One way to avoid this is by buying in an annuity policy for pensioner members. This means that in the event of sponsor insolvency, the policy would be an asset of the scheme, ensuring all members are treated equitably.

Corporate solutions

If purchasing an annuity overshoots the budget, there are now innovative corporate solutions to help transfer risk. Many sponsors that cannot immediately buy out without a significant cash injection (the majority, as there is no requirement to fund to the buyout level) want to reduce the risk of the scheme. Shareholders are likely to share this view: continued contributions to a DB scheme may not be in their interests, especially if the investment situation subsequently improves and a surplus becomes trapped in the scheme.

Demand for non-insured solutions can be driven by pension schemes themselves, particularly if a scheme has a real or perceived deficit that can only be made up over some years. The danger for trustees is that meeting the pension promise depends on the continued prosperity of their sponsor.

One option is a non-insured pension risk transfer or ‘corporate scheme adoption’, which is typically designed in a bespoke way. The sponsor is either purchased with the pension plan attached, or an acquirer becomes the new sponsor directly. It is key to ensure that any structure provides additional security for members and does not result in scheme abandonment. Therefore, a non-insured pension risk transfer – where the transaction actually increases the value of the sponsor covenant either by replacing the sponsor with a stronger sponsor, or by adding assets contingently or directly to the pension scheme – avoids this dilemma. It also has a higher chance of being cleared by the regulator.

This solution fills the middle ground between corporate sponsors that are strong and can afford pension insurance, and sponsors where the corporate covenant is very weak and of concern to the regulator and the Pension Protection Fund. Small operating firms with large legacy schemes attached may also be potentially attracted to this form of pension risk transfer. However, many sponsors and trustees are only looking at the immediate road ahead. They will want to reduce the risks, without necessarily severing the link between the sponsor and the pension scheme. Here, the focus needs to be on managing both the assets and the liabilities. Trustees and sponsors can implement bond or swap-based hedging strategies to nullify the impact of interest rates and inflation on their liabilities. This allows them to derisk the pension scheme and focus on growing the assets until they are at a stage to afford either partial or full insurance buyouts.

Many schemes lack the skills and quality of advice to identify and quantify all their risks accurately. Key risks are often not sufficiently understood. Imperfectly hedged, the recent downturn in the global economy and financial markets means many schemes that were slowly pursuing a path towards an insured buyout may never get there.

Some may choose to delegate the holistic management of all the scheme’s assets and liabilities to a third-party fiduciary manager. These specialists will typically hedge all the liabilities where possible and diversify the assets among a range of best-of-breed providers, while maintaining a watchful eye on all risks within the scheme as a whole. This ensures the funding position is improved and its ultimate targets are reached in an efficient, structured manner. The approach has proved popular in countries such as the Netherlands, where it has significantly improved funding positions.

The problem is that the solutions outlined in the previous section contain no direct protection against longevity improvements, with only pension buyouts providing the ultimate cover for a scheme sponsor. However, there are now products available that aim to decouple this crippling idiosyncratic risk from the investment risk in a cost-effective manner for those schemes that wish to retain management of their assets. This can allow a pension scheme to fine-tune its risk budget and ensure the larger part of a scheme’s risk – its volatile liabilities – is better constrained, while freeing up valuable capital to invest in returning seeking assets and improve the funding position. Longevity solutions can also be used as the final piece in a derisking process, which can allow schemes to be managed with limited volatility.

The latest breed of products allow pension schemes to insure only the longevity risk of pensioners. These products can be scheme-specific, covering pensioners and their dependants for their entire lifespan. This caps the exposure of the liabilities to future longevity improvements and may even increase the chances of a buyout further down the line by potentially reducing the cost. Pension insurance buyouts and their alternatives may be attractive to many sponsors and trustees.

Cost will usually be the critical factor in any decision and much of the recent innovation in the pensions field has been devoted towards providing stepping stones towards full buyout. It is important to think about each step as part of a continuum and ensure each solution is really tailored to the specific needs of the trustees, their sponsoring company and the funding position of the scheme.

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1. Is the conflict of interest of having a financial director on a trustee board a price worth paying?

Isabel France, Partner, Linklaters: Having a financial director on the trustee board should be viewed as a benefit to both trustees and employer. This allows trustees access to more information about the employer, as well as providing important expertise in financial matters. It also helps ensure that the employer has some input into trustee decisions and demonstrates the importance of the pension scheme to the employer. Conflicts of interest may arise from time to time, but this doesn’t necessarily negate the advantages.

John Coomber, Executive vice-chairman, Pension Corporation: While there is no doubt that there are many benefits in having the finance director contributing to the trustee board in normal circumstances, the potential for conflict in times of stress overrides these benefits. It is better for the finance director to be a representative of the company, engaging professionally with the trustees, and for the scheme to have its own independent advice.

Steven Dicker, Senior corporate consultant, Watson Wyatt: There has never been a greater need for financial sophistication on trustee boards given turbulent markets and the plethora of new solutions. Corporate treasurers are also ideally suited to understanding the approaches to pensions risk management. If necessary, their involvement can be structured to manage any conflicts, for example by membership of an investment sub committee rather than the main trustee board, and attending trustee meetings by invitation rather than as a full member.

2. In what circumstances should a financial director be looking to defend the future of DB provision for current staff at his or her company?

Isabel France: This is very specific to the business needs of the company. It may be that DB provision for current staff is perceived to be central to the successful retention of staff, or that removal of DB provision would be damaging. In these cases, the financial director may take the view that the risks of removing the provision outweigh the risks of continuing with it. What is important is that the financial director looks at more than just the financial risks in isolation.

John Coomber: There are no obvious reasons for the finance director to defend the future of DB provision. The executive management team may well argue that for the purpose of retaining and attracting talent to the company, the scheme has strategic value and is worth the cost. The finance director could argue that over the long term, the DB scheme is a more value-efficient way of delivering pension benefits. This would be correct if the company could absorb the consequent volatility, but it is a most unfashionable conclusion.

Steven Dicker: Where, setting aside legal and moral issues, a corporate has the strength and financial sophistication to manage defined benefit (DB) risks effectively and it believes that the HR benefit outweighs the risk. For example, this might make sense in cases where labour costs are a small component of the overall costs that the finance director needs to control and where the success of the business relies on long-term retention of skilled staff.

3. What common mistakes do financial directors make regarding their company pension funds?

Isabel France: Financial directors commonly focus on the big picture. However, often a close examination of the pension scheme rules and members’ contracts can suggest measures wholly or partly within the employer’s control that could impact on risk control and in some cases lead to significant cost savings. It is also important for the financial director to develop a good relationship with the trustees and to work in partnership with them.

John Coomber: Perhaps the most critical error has been complacency with regard to the economic risk from the asset liability management strategy in the pension fund. The company ultimately makes good any funding deficiencies through increased levels of contribution – and deficits can restrict the company’s dividend payments or expansion plans. The finance director should be concerned that the risk limits for the scheme asset portfolio are reasonable, relative to the size of the operating profits of the business.

Steven Dicker: Leaving it to others. If a company had an operating subsidiary the size of its pension scheme, the finance director would keep a close eye on it. Clear financial direction from the top is essential to managing pensions effectively for corporates – the approach needs both strategic and tactical aspects. In the current climate, it would also be a mistake to think a strong IAS 19 position will make much difference to the amount of money the trustees ask for at the next valuation.

4. What are the pitfalls in offering cash inducements to members to leave a scheme?

Isabel France: It is crucial to do the groundwork to understand which employees would benefit from the offer, and to structure and target the offer appropriately. Good communications should mean employees are well informed about the reasons for the proposals and the implications of accepting it. Poor communications, on the other hand, risk raising suspicion and discontent among employees and could potentially form the basis for future challenges. Additionally, trying to rush a proposal through will have all the disadvantages associated with poor communication and is likely to result in a lower take-up rate.

John Coomber: The starting point for evaluating any such proposal must be the Pensions Regulator and Financial Services Authority guidance, and specifically the requirement for an IFA’s advice at the member level. Cash inducements are emotive and increasingly high profile. The finance director should be prepared for external scrutiny. If there is any lack of alignment between the company and trustees on the objectives of the exercise, it should not proceed.

Steven Dicker: This involves an overhead that can be significant and it requires cash from the company to pay the incentive, which may currently be scarce. To avoid being accused of mis-selling, the company would have to ensure that appropriate information and advice is provided to employees. If done well, however, the risks should be low.

5. What does a financial director need most when negotiating a large buyout or buy-in deal?

Isabel France: A good partnership with the trustees to ensure successful implementation and communication of the project. A good understanding of the specifics of the contract, for example which risks are transferring and which remain. An awareness of the wider picture, for example what knock-on effects there are for the funding of any liabilities that remain in the pension scheme.

John Coomber: Confidence in the process and the counterparty, and clear economic rationale to validate any contribution from the company. The trade-off between the risk reduction in the balance sheet and earnings statement against any cash injection to the fund will need to be clear and acceptable to shareholders.

Steven Dicker: A clear mandate from the board, good relationships with trustees and high quality advice across the spectrum of issues. Under a buy-in, a bulk annuity policy is held as a scheme investment and the sponsor would be on the hook for any shortfall if that investment underperformed. Insurers have to hold substantial capital reserves, but recent events serve as a reminder that financial institutions can get into difficulty. Companies should consider negotiating a contract that protects their position if that happens.

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Pension Corporation today announces the consolidation of its position as a leading UK specialist provider of pension solutions with the commencement of a second-round fundraising of core equity capital. The fundraising is to be launched on the back of an immediate investment by J.P. Morgan and will allow Pension Corporation to provide security to many more defined benefit pension scheme members.

As part of the agreement, Pension Corporation will acquire assets and key members of the team of Synesis Life, a UK insurer of bulk annuities backed by J.P. Morgan, The Royal Bank of Scotland and Warburg Pincus.

The fundraising will be offered first to current investors and thereafter will be marketed to new investors in the first half of 2009. Pension Insurance Corporation is an authorised insurance company, regulated by the Financial Services Authority (“FSA”).

The funds will improve Pension Corporation’s ability to meet the fast-growing pipeline of pension enquiries, which now exceed £100 billion across the group’s range of solutions, including its ground breaking insurance of longevity risk.

The fundraising would be raised at a premium on terms that reflect Pension Corporation’s robust foundations and the approximate £5 billion of pension assets already under its stewardship. The acquisition of the Synesis Life team increases Pension Insurance Corporation’s capacity to handle its growing share of the fast expanding pension risk transfer market.

John Coomber, Executive Vice Chairman of Pension Corporation, commented:

“We are delighted to have an investor of J.P. Morgan’s stature back our vision of providing a comprehensive set of pension risk transfer solutions. We also welcome the Synesis team, who round out our skills and capacity to deal with complex pension risk transfers as we expand further.”

Edmund Truell, Chief Executive of Pension Corporation, commented:

“The pension risk transfer market is growing rapidly. The extra capital we are raising, led by J.P. Morgan, will extend our capacity to take market share in areas with the right balance of risk and reward. This significantly increases our ability to play a leading role in addressing the historic legacy of defined benefit pension liabilities, which amount to more than twice the size of the UK’s national debt and nearly equal the country’s total gross domestic product. We are ready to provide long-term security for hundreds of thousands more pension fund members across the country.”

Edward Giera, Managing Director, Pensions Advisory Group J. P. Morgan, commented:

“J.P. Morgan is pleased to support Pension Corporation’s equity capital increase. The significant range and complexity of the challenges facing UK defined benefit pension funds requires a variety of solutions, and the combination of Pension Corporation with Synesis Life team will create a powerful force in the UK market.”

Enquiries

Pension Corporation
Jeremy Apfel
+44 (0)20 7105 2140

Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured by way of an insurance contract. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to analyse assets and liabilities of pension schemes. It can manage pension fund assets on a fee basis.

Security

Pension Corporation has been supported in its growth by its founding investors, which include J.C. Flowers, Royal Bank of Scotland, HBOS, Swiss Re, and Istithmar World. Established by the Truell Charitable Foundation, its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group; John Coomber, former Chief Executive of Swiss Re; Sir Martin Jacomb, former Chairman of Prudential Assurance Group; Bob Scott, former Group Chief Executive of Aviva; Philip Moore, former Chief Executive of Friends Provident; and John Fitzpatrick, former Chief Financial Officer of Swiss Re. Pension Corporation has some £5 billion of pension assets under its stewardship.

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The Bank of England’s 1.5 percentage point interest rate cut was a shock. It looked like a panic measure. The trouble is that such violent, surprise action causes people to draw in their horns in fear, and thus tends to counteract the desired effect.

But how sensible is it to encourage borrowing for personal consumption? Keynes, it is true, wanted people to spend in a downturn and loathed the idea of increasing savings at such a time. But he was not visualising a society that was already seriously overindebted.

The government has been spending well beyond its income, and the economic stability for which it claims credit has been based on this. But individuals have been borrowing and spending lavishly too.

Credit card and mortgage indebtedness has increased remorselessly. In the past 10 years outstanding mortgage debt has increased from £450bn to £1,200bn while consumer indebtedness has risen from £100bn to more than £230bn, making the UK population the most highly indebted in Europe. Most of this has been financed by credit markets fed by the savings of workers in Asia.

The accent has been on consumption and the message now is, apparently: let this continue. However, although consumption is the purpose of all economic activity, the problem is that if everything produced is at once consumed and nothing saved, trouble is bound to follow. Gordon Brown, the prime minister, not long ago called for an end to the “age of irresponsibility”, but now the signals are for yet more borrowing.

If this downturn is to be avoided by boosting consumption, financed by borrowing and unmatched by increased production, the present difficulties may be mitigated but there will be trouble ahead.

For if demand based on borrowing is increased, with sterling battered, the hideous spectre of inflation looms once again two or three years ahead.

Meanwhile, the UK savings record is pathetic. Household savings as a percentage of disposable income have declined from 7 per cent (not an impressive figure anyway) to zero over the past 10 years. The government has been encouraging this and has undermined saving over the past decade.

The destruction of private-sector defined benefit pension schemes, once the envy of the world, was an early example. The emphasis put on house ownership is another. The belief that an owner-occupied house is an “investment” has been fostered. But to treat it as if it were all investment is a seductive misapprehension. It is an investment only in so far as the occupants produce more at work (or in their gardens) or their children become better educated. Apart from this, the comfort and warmth of a home are a form of consumption. The house needs repairs, maintenance and heating. The idea that houses go on increasing in value so that everyone can sell at a profit and live happily in retirement is cruelly false in the long run. Yet people have been encouraged to believe that everyone should buy houses and that it is a safe investment that they can sell at a higher price, to provide for old age.

A new blow has now been delivered by this interest rate cut. The interests of savers should not be so lightly disregarded. A different emphasis is required. With interest rates falling, other incentives are called for.

One of the difficulties, however, is that such a change requires action from ministers and civil servants, who enjoy index-linked pensions that obscure the need for the rest of us to save for retirement. Increased saving obviously means less consumption, and it also means fewer jobs in house-building and retailing. But this is happening anyway.

The current crisis engenders fear and that increases the propensity to save. Why not encourage this, and focus on the extension of credit instead towards industry and commerce so as to increase investment in productive capacity and build something for the future? Publicly funded infrastructure projects could be brought forward. As another example the non-fossil fuel energy drive – one of the sectors that is currently favoured – is worth looking at. Whether with wind or nuclear energy, virtually all the relevant equipment has to be imported. Should we not start to develop our own (non-estuary) tidal energy capacity, benefiting from a devalued sterling? There are many other areas where productive government-assisted investment could be directed.

There are already different forms of tax relief available for personal saving for retirement. The complex rules for both individual savings accounts and self-invested personal pensions (Sipps) were relaxed in 2006. But more needs to be done. Incentives must be substantial and complexity needs to be avoided. A scheme for savings accounts, with fully tax-deductible contributions, without maximum limits, could be the basis. The contributions would be investable in financial assets (as with Sipps) and income from these would be tax-free. Withdrawal would be allowed at any time and would be taxable at that point. The requirement to delay withdrawal and buy a pension could be abolished; this would reduce complexity and increase attractiveness.

Action to control unemployment is obviously essential, for both societal and fiscal reasons; but a policy that is so blinkered that the importance of personal saving is disregarded is doomed, in the end, to failure. We should convert this catastrophe into an opportunity to rebalance our economy.

Sir Martin Jacomb, who was chairman of Prudential until 2000, writes in a personal capacity

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Pension Corporation, a leading provider and underwriter of pension solutions, yesterday launched Pensions Tomorrow, a new initiative in association with the Department of Management at the London School of Economics and Political Science (“LSE”).

The Pensions Tomorrow initiative aims to bring together industry leaders, government, regulators and think-tanks to debate the growing issues of pensions and longevity in an independent forum. It will produce high-quality and timely commentary for a broad audience, and independent peer-reviewed research on the major issues facing pensions.

Last night’s inaugural seminar at the LSE was chaired by Professor Paul Willman, Department of Management, and featured speeches from Howard Davies, Director of the LSE, and Edmund Truell, CEO of Pension Corporation. The event welcomed around thirty guests including Lawrence Churchill, Chairman of the Pension Protection Fund, David Norgrove, Chairman of The Pensions Regulator, John Hills, Director of the Centre for Analysis of Social Exclusion and Peter Moon, Chief Investment Officer of the Universities Superannuation Scheme Limited.

Pensions Tomorrow will be an ongoing forum with a broad remit, examining all aspects of the pensions landscape including policy and regulation, the role of capital markets in pensions provision, asset-liability management, public and private sector pensions, longevity, socio-political considerations, labour market issues and the economic history of pensions, both in the UK and internationally. Drawing on expertise within Pension Corporation and the Department of Management, as well as other LSE departments such as Accounting, Finance, Economics and Sociology, Pensions Tomorrow will subject widely held assumptions regarding pension provision to scrutiny.

Edmund Truell, Chief Executive of Pension Corporation, commented:

“Pension Corporation is delighted to have launched this new initiative with the LSE and the Department of Management, which has an enviable global reputation. I would like to thank everyone who attended yesterday’s seminar for making it such a success. We are confident that the broad remit of Pensions Tomorrow and the wealth of expertise amongst all those involved will provide the catalyst for an open debate about the tough questions that need to be answered regarding the future provision of pensions.”

Paul Willman, Professor, Department of Management, LSE, commented:

“We are delighted to welcome Pension Corporation on board as the Founding Sponsor of this bold new venture. We intend to establish a multi-disciplinary centre for the examination of pension provision and the implementation of sustainable retirement systems. Our central question for Pensions Tomorrow is simple: how do we structure the future provision of pensions, taking into account wider economic, demographic and societal considerations both at home and abroad?”

A podcast of the seminar will be available at
http://www.lse.ac.uk/collections/management/pensionsTomorrow/newsandevents.htm

For more information on Pensions Tomorrow please visit
http://www.lse.ac.uk/collections/management/pensionsTomorrow.

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, Bob Scott, former Group Chief Executive of Aviva and John Fitzpatrick, former Chief Financial Officer of Swiss Re. Pension Corporation has almost £5 billion of pension assets under its stewardship.

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Pension Corporation, a leading provider and underwriter of pension solutions, today announces the appointment of Dr Frank Eich as Senior Economist, effective immediately.

Dr Eich will chiefly be responsible for economic issues relating to public and private sector pensions, and will work with the Longevity Risk Management team at Pension Corporation to better assess and manage the risk originating from the uncertainty of future longevity trends – the greatest challenge for pension funds today. He will also collaborate with Dr Amarendra Swarup to develop Pension Corporation’s programme of setting up independent research initiatives with strategic partners such as the London School of Economics to produce high quality thought leadership on pension-related issues.

He joins Pension Corporation on secondment from HM Treasury where until early 2008 he headed the Long Term unit within the Macro and Fiscal Policy Directorate. Dr Eich has worked extensively on issues such as long-term fiscal sustainability, the macroeconomics of pension provision and long-term labour market trends.

In his role at the Treasury, Dr Eich also worked closely with the Department for Work and Pensions, the Government Actuary's Department, National Statistics and the Government’s Foresight Project, and represented the UK at the European level as a member of the Economic Policy Committee’s Working Group on Ageing Populations.

Prior to joining HM Treasury Dr Eich worked as a country economist at the Economist Intelligence Unit. He was a visiting fellow at the International Monetary Fund in 2004 and spent six months in 2008 at the German finance ministry working on European and international economic issues. Dr Eich holds a PhD in Economics from the London School of Economics.

Edmund Truell, Chief Executive of Pension Corporation, commented:

“I am delighted to welcome Frank to Pension Corporation. His wealth of experience and deep knowledge of the key economic issues regarding public and private pensions will be invaluable as we continue to grow and develop our range of solutions for defined benefit pension funds.”

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, Bob Scott, former Group Chief Executive of Aviva and John Fitzpatrick, former Chief Financial Officer of Swiss Re. Pension Corporation has almost £5 billion of pension assets under its stewardship.

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Pension Corporation, a leading provider of pension solutions, is delighted to announce the appointment of Louise Inward as general counsel. Ms Inward, a qualified barrister, was formerly head of the pensions practice at PricewaterhouseCoopers Legal. Her appointment is effective as of 3rd November, 2008.

In her role, Ms Inward will be chiefly responsible for advising Pension Corporation on all aspects of the regulatory and legal issues, and developments in the pensions sector. Ms Inward will be working across the Group, including advising the business development, origination and liability and risk management teams.

Ms Inward brings a wealth of experience accrued in the pensions industry from senior positions across the private and public sector advising sponsors and trustees on all matters of pensions issues and notably, corporate transactions and scheme funding. Prior to joining PwC, Ms Inward was Head of Corporate Risk Management (CRM) at the Pensions Regulator. During her tenure there, Ms Inward was involved in the evolution of the Pensions Act 2004 and the regulatory requirements under it, and in the formation of the Corporate Risk Management team.

Edmund Truell, Chief Executive Officer of Pension Corporation, commented:

“I am very pleased to welcome Louise to Pension Corporation. Her wide array of experience will further strengthen our team of recognised pensions experts. I know Louise will make an immediate impact in contributing toward the exciting development of Pension Corporation.”

Louise Inward said:

“Pension Corporation has built a highly skilled and experienced team to provide solutions to the pension liability risk transfer market. I am excited to be joining Pension Corporation to assist in building on its track record and strengthening its specialist services to the pensions’ market.”

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies, including The Royal Bank of Scotland, HBOS and Swiss Re. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, Bob Scott, former Group Chief Executive of Aviva and John Fitzpatrick, former Chief Financial Officer of Swiss Re. Pension Corporation has almost £5 billion of pension assets under its stewardship.

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Once the preserve of wealthy families and viewed with deep suspicion by nearly everyone else, private equity is increasingly a valuable tool for pension schemes looking to diversify their portfolios and improve their funding positions.

Investors have been dabbling in private equity for centuries, with early well-known examples including the old Victorian merchant banks and the original JPMorgan. Today, it is a diverse field encompassing everything from venture capital investors in small start-ups, to buyout specialists looking to restructure poorly managed public companies, to distressed strategies, which hope to turnaround otherwise doomed enterprises.

In recent years, institutional investors have begun to turn their attention towards accessing this complex asset class through specialist private equity funds. The European Private Equity and Venture Capital Association estimates that 23% of the total money raised by Europe-based private equity funds between 2003 and 2007 came from pension funds, with nearly another 10% coming from insurance companies.

The rapid growth is no coincidence – private equity has shown long-term historical outperformance over publicly traded stocks across most sectors. The ability to invest in entrepreneurs and exposure to often smaller companies can also provide valuable diversification to the typical pension fund equity portfolio, and can also help improve returns without significantly impacting the risk profile.

There are caveats. Most private equity investments are illiquid and long-term, requiring investors to commit for five to 10 years. There is limited transparency, with few of the requirements or regulations that typify listed stocks. Every niche and industry requires a different skill set and knowledge base. These combine to make any risk assessment and valuation difficult, contributing to the suspicion of private equity held by many today.

However, as with any field of investment, it’s all about understanding the unique characteristics of that asset class. This active approach is key to the creation and extraction of value from these investments, and to the superior long-term performance generated by the private equity sector.

One option is to consider external asset-liability management providers with expert knowledge, who manage the assets and liabilities for trustees on a holistic real-time basis and ensure assets are effectively diversified, with a judicious and risk-controlled allocation to private equity.

It is a complex area, but one with invaluable benefits for those pension funds willing to expand their knowledge and explore innovative ways of optimising their portfolios. The rise of experts who can partner with them means that they are not alone on this journey.

Jargon buster

Courtesy of Aviva Investors’ Trustee Tutor

Fat tails
A statistical reference to the idea that returns from markets may vary more than we tend to think.

Fiduciary
A very high standard of behaviour. If you have a fiduciary relationship with someone, you have an obligation (over and above any contract you have with them) to act in their interests, not yours. You also have an obligation not to put yourself in a position where you have a conflict of interest. An investment manager owes fiduciary obligations to the client. A pension fund trustee has a series of fiduciary obligations to the beneficiaries (or members) of the pension trust fund.

Flight to quality
When investors get nervous, they prefer to invest in less risky assets, such as cash and government bonds. The trouble is that it is quite imprecise: are pricey government bonds less risky than cheap small companies? Over what time horizon? Herd behaviour often applies.

Future
Binding agreement to do something in the future. If you buy an option, you are buying a right to do something in the future, if you want to. If you buy a future, you agree to do something in the future, even if you might not want to. Future contracts can be traded on futures exchanges, so you could pass on the buying obligation to someone else.

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Pension Corporation, a leading provider and underwriter of pension solutions, today announces the appointment of Philip Moore as Group Finance Partner, effective immediately.

Mr Moore, 48, who was previously Chief Executive and Group Finance Director of Friends Provident and more recently Chief Finance Officer of HM Revenue and Customs, will be facilitating the strategic development of the Pension Corporation group.

Mr Moore brings over 25 years’ experience of the life insurance and pensions industry, holding other senior management roles such as Partner and leader of the insurance consulting group at PricewaterhouseCoopers in Southeast Asia; Finance Director and Actuary and Chairman of the Investment Committee at NPI; and as Corporate Director Finance and Head of M&A at AMP.

In Mr Moore’s time at Friends Provident, life and pensions sales and underlying earnings per share increased significantly. He was responsible for facilitating at group level the F&C Asset Management turnaround plan and led the proposed merger with Resolution which was outbid.

Edmund Truell, Chief Executive of Pension Corporation, commented:

“I am delighted to welcome Philip to Pension Corporation. I am confident that his deep experience of the pensions industry, coupled with his formidable reputation for delivering results, will be of huge benefit to Pension Corporation.”

Mr Moore said:

“Pension Corporation has developed an impressive business in a very short space of time and a reputation for providing highly sophisticated and innovative solutions to the pension liability risk transfer market. I am delighted to be joining Pension Corporation at such an exciting time in its development.”

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, Bob Scott, former Group Chief Executive of Aviva and John Fitzpatrick, former Chief Financial Officer of Swiss Re. Pension Corporation has almost £5 billion of pension assets under its stewardship.

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Pension Corporation, a leading provider of pension solutions, estimates that the capacity of the UK pensions’ buyout market will have to grow by nearly £250 billion over the next three years if the current levels of demand from trustees are to be met, according to new research by Pension Insurance Corporation (PIC), the Group’s fully authorised and Financial Services Authority regulated insurance company. New capacity of £250 billion represents an increase of more than 80 times over the aggregate value of pensions’ buyout transactions in 2007. Pension Corporation estimates that £30 billion of additional solvency capital will be required to underpin buyout demand.

The research echoes a recent poll by Hymans Robertson, which indicated that nearly a third of trustees expect their scheme will be bought out within the next decade.

The last two years has seen an explosion of activity in the pension insurance market with £2.9 billion of insurance deals transacted in 2007 and £5 billion in the first half of 2008. By the end of this year, the total could surpass £10 billion. Additionally the corporate deals market, where Pension Corporation and Citibank took on the sponsorship of over £4.5 billion of pension liabilities, and insurer to insurer bulk annuity transfers totalling over £10 billion, have also absorbed substantial capacity. Key to this growth has been the attractive pricing and innovative solutions offered by insurers such as Pension Insurance Corporation, as evidenced by their partial buyout of Delta Plc’s pensioner liabilities. Another notable example of the innovation offered is PIC’s recent buyout of the orphaned UK Can scheme, which left the members with greater benefits than they would have otherwise had under the PPF.

Pension Insurance Corporation estimates that the current capacity of the pensions’ buyout market could accommodate up to another £25 billion of buyout transactions, significantly less than the demand expressed by trustees. Current buyout liabilities for the private sector are approximately £1.2 trillion. If 31% of these transact over the next decade as indicated by Hymans Robertson’s poll, nearly £350 billion of additional capacity will need to be found by the industry, according to Dr. Amarendra Swarup at Pension Corporation. Much of this will be required within the next three years if current levels of demand are to be met.

Edmund Truell, Chief Executive of Pension Corporation, commented:

“These estimates from both Hymans Robertson and ourselves reaffirm the immense growth potential inherent in the pension solutions sector. We are confident that Pension Insurance Corporation is well placed to help trustees secure their members’ benefits. Indeed, it was in anticipation of this future growth that we raised nearly £1 billion of capital. As the popularity of pension insurance continues to grow, we look forward to meeting the demand from trustees and sponsors to reduce risk in their pension funds.”

John Coomber, Executive Vice Chairman of Pension Corporation, commented:

“I believe we are witnessing a paradigm shift in the pensions’ industry. Buyouts are the obvious way for trustees and sponsors to take risk off the balance sheet and secure members’ benefits. Pension Corporation has a strong support base of committed blue chip investors and we are confident of our capacity to accommodate the market's growing appetite for pension solutions.”

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies, including The Royal Bank of Scotland, HBOS and Swiss Re. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, Bob Scott, former Group Chief Executive of Aviva and John Fitzpatrick, former Chief Financial Officer of Swiss Re. Pension Corporation has almost £5 billion of pension assets under its stewardship.

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Mortgage debt in Britain passed £1trn for the first time in June 2006 – a year after total personal debt had broken through the same barrier. But that wasn’t the only record broken that year.

Though the fanfare was more muted, it was also the year the UK government’s estimated net public sector pension liabilities surpassed £1trn. The problem is that while mortgage debt is supported by £3.6trn in property, public sector pension liabilities are backed by a somewhat lesser amount – zero in most cases, to be precise.

A lucky few, such as the Local Government Pension Scheme and the Universities Superannuation Scheme, are actually funded. But well over 3 million public sector workers today are dependent on a tenuous promise for their retirement income.

The government’s predicament mirrors that of those suffering from the credit crunch. There are few savings. Little has been invested. Today’s pensions are mostly paid as they arise through current resources and annual salary contributions from public sector employees and their employers – most of whom are likely to be unaware their contributions are not being saved for the future. Consequently, the £19.3bn contributed is insufficient to meet the current cost of pensions and has to be supplemented by a £9.6bn annual subsidy from the taxpayer.

The numbers are only set to grow further. Unlike the private defined benefit (DB) sector, which has been decimated by its own relatively trifling black hole of £200bn, public sector DB schemes remain open to new members, recently surpassing the private sector membership, despite employing only one-fifth of the workforce.

Reasonable measures to bring the public sector in line with private sector schemes, such as raising the retirement age from 60 to 65 for existing members and capping the index-linking of pensions, could help reduce the haemorrhaging for now. However, a fear of alienating increasingly vocal unions has meant that generous increases in public sector pay have remained the preferred policy. On average, public sector employees now receive benefits over four times’ more generous than those of their private sector cousins.

The result is an ever-increasing bill for taxpayers, which could cost every household £40,000 over the next few decades, according to the TaxPayers’ Alliance. It’s a politically unacceptable solution and is already financially challenging, with estimations it could add £40bn to the government deficit.

Political will and firm action are necessary if these issues are to be addressed. Most importantly, the government needs to increase transparency in public sector pensions. It is only then that we can truly understand the scale of the challenge and begin debating how to get public sector pensions on a more sustainable footing.

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Pension Insurance Corporation, today announces that it has been selected after an independent and competitive tender process to secure the pension benefits of The UK Can Pension and Assurance Plan (“The UK Can Pension Plan”). Pension Insurance Corporation is part of the Pension Corporation group, a leading provider of pension solutions, and is fully authorised and regulated by the Financial Services Authority.

The UK Can Pension Plan came under the protection of the Pension Protection Fund (“PPF”) in October 2006 with the appointment of administrators to the pension fund’s sponsor, U.K. Can Limited (“UK Can”) and in December 2007, UK Can was liquidated.

Under the agreement with the Trustee of The UK Can Pension Plan, Pension Insurance Corporation will insure specified benefits to which members of the Pension Plan are entitled, at a level which is greater than the pension benefits currently provided by the PPF. In exchange for insuring these benefits, Pension Insurance Corporation has received assets amounting to £42 million.

The transaction brings the aggregate pension assets managed by Pension Insurance Corporation under bulk annuity contracts to more than £550 million. Including sponsored pension funds, Pension Corporation has almost £5 billion of pension assets under its umbrella.

Edmund Truell, Chief Executive of Pension Corporation, commented:

“This agreement with The UK Can Pension Plan emphasises Pension Corporation’s expertise and flexibility in being able to offer a comprehensive set of affordable solutions to defined benefit funds of any financial strength, size or maturity profile. It also demonstrates how we can enhance retirement benefits for members of a pension fund under the protection of the PPF and give each member the reassurance of having their own individual pension policy.”

Paul Jayson, Partner at Barnett Waddingham, Actuary and Administrator to The UK Can Pension Plan, commented:

“We are delighted to have worked closely with Pension Insurance Corporation and the Trustee to find a solution that benefits the UK Can pension plan scheme members. The Trustee selected Pension Insurance Corporation following detailed due diligence by our insurance experts, including a review of the quality and strength of its regulatory capital.”

Chris Martin, Managing Director of Independent Trustee Services and Trustee to The UK Can Pension Plan, commented:

“The majority of members of The UK Can Pension Plan are likely to achieve a far better outcome than they would have anticipated when the PPF assessment period started. It has been a very difficult couple of years for them. We were particularly pleased with Pension Insurance Corporation’s approach of putting members at the forefront of the process. A key factor in the decision of the Trustee to choose Pension Insurance Corporation was its willingness to tailor a solution to make the transition as smooth as possible.”

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Nick Henderson
+44 (0)20 7269 7114

Caroline Parker
+44 (0)20 7269 7295

Christine Wood
+44 (0)20 7269 7253

Barnett Waddingham
Laura Cocker (Edelman)
+44 (0)20 3047 2365

Independent Trustee Services
Chris Martin
+44 (0)20 7528 4889

Isabella Young
+44 (0)20 7895 7820

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies, including The Royal Bank of Scotland, HBOS and Swiss Re. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, Bob Scott, former Group Chief Executive of Aviva and John Fitzpatrick, former Chief Financial Officer of Swiss Re. Pension Corporation has almost £5 billion of pension assets under its stewardship.

About Barnett Waddingham

Barnett Waddingham LLP is the UK’s largest independent firm of actuaries and consultants offering a full range of professional advice on pensions and investments to companies and pension fund trustees in both the private and public sector.

The firm currently has 40 partners and over 400 staff, based in seven locations around the UK (Amersham, Bromsgrove, Cheltenham, Glasgow, Leeds, Liverpool and London).

www.barnett-waddingham.co.uk

About Independent Trustee Services Ltd

Independent Trustee Services Ltd (ITS) was established in February 1991 and provides professional trustee across a broad spectrum of occupational pension schemes. The high quality of ITS's service is derived from the experience of its management team and staff. Board members of ITS each have significant experience in the pensions industry and are recognised by their peers as specialising in their field.

ITS won the Independent Trustee of the Year Award at the Financial Times Business Pensions & Investment Provider Awards 2008.

www.itslimited.org.uk

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Steve Johnson talks to the chairman of Pension Corp, one of the first to exploit the pension buyout market

It should come as little surprise that Sir Mark Weinberg is an expert on longevity. The chairman of Pension Corporation, among other things, Sir Mark is still beavering away enthusiastically at the age of 77.

“I find this very stimulating: it’s working with some very bright people. If you retire you die soon afterwards,” he says, offering his own idiosyncratic take on the nature of longevity.

Pension Corp has led a chameleon’s life in its two years of existence, as well as stirring up its fair share of controversy, and is once again reinventing itself.

Edmund Truell, erstwhile chief executive of the private equity house Duke Street Capital, launched Pension Corp to challenge the long-standing duopoly of the life assurers Legal & General and Prudential in the UK pension buy-out market, where the assets and liabilities of closed defined benefit pension schemes are converted into a series of individual annuity contracts.

Unfortunately, a litany of life assurance luminaries had the same idea at the same time, erasing the attractive margins Pension Corp had been eyeing up.

While continuing to bid for, and lose, these traditional bulk annuity deals, Pension Corp devised a new strategy: that of buying up companies to get at their pension assets, leveraging Mr Truell’s private equity expertise.

In 2007, deals were struck for the pension schemes of Thorn and Thresher, as well as Telent, the rump of the former Marconi engineering empire. This approach was potentially more lucrative: by eschewing the insured buy-out route Pension Corp did not have to maintain the solvency capital required of an insurer. With Citigroup following Pension Corp’s lead, and other institutions signalling their desire to follow suit, the phrase “regulatory arbitrage” sprang to the lips of observers.

But the £400m (€505m, $780m) Telent deal in particular caused a stink: trustees, unions and, most importantly, the pensions regulator were not amused. In November, the regulator appointed its own independent trustees to protect scheme members and the £500m sitting in an escrow account to cover possible scheme shortfalls.

More significantly, the UK government has now given the regulator increased powers to demand higher contributions from “organisations connected or associated with the employer”, if it judges members’ benefits at risk.

In retrospect Sir Mark, an industry veteran who has founded three life assurance companies in his time, admits to errors in the way Pension Corp handled the Telent deal. “We made a mistake: we didn’t go and speak to the regulator. With hindsight we absolutely should have done. The regulator slapped an order on us and I suppose it indirectly resulted in the changes in pension law.”

The regulatory clampdown is widely seen as sounding the death knell for the non-insured buy-out model. One rival, Aleva, threw in the towel following the government ruling.

Sir Mark agrees it may be the death knell, but in a slightly different sense. “The real obstacle for us is the determination of the regulator that we, as the buyer, should not be able to get deeply involved in the investment management of the scheme,” he says.

“Under the trustee model the trustees control the assets. If they get it wrong the company writes out a cheque without having any influence. That is a real, fundamental issue that has started to surface.”

It is this lack of ability of a corporate acquirer to implement an asset liability management strategy – on the insured side of its business Pension Corp typically shifts schemes out of equities and neutralises inflation and interest rate risk – that is the primary deterrent, according to Sir Mark.

“We have not been actively pursuing corporate deals. We will only do them in the future where there are special circumstances, including where a pension fund wants us to help them with investment management.”

Instead Pension Corp has reverted to plan A and started winning traditional bulk annuity business. In June it took over the running of the £72m scheme of the property developer Swan Hill and the £451m fund of Delta, a metals company.

Sir Mark lauds the value of both deals to the sponsors, pointing out that Delta’s share price rose on the deal, despite its additional payment of £49.7m, as “the market recognised that they were getting rid of a risk that added volatility to the earnings”. For Swan Hill, offloading the pension scheme allowed it to separate its UK and Russian businesses.

He claims that demand for such deals has “shot up”, with Pension Corp being asked to quote on £125bn of deals. This increased demand for insured buy-outs has also pushed up prices which, having fallen from a typical 130 per cent of FRS 17 liabilities to 110 per cent as new entrants flooded the market, has stabilised nearer 120 per cent, Sir Mark says.

And, not content with finally getting some insured business under its belt, Pension Corp is reinventing itself once again, this time as a provider of longevity insurance, whereby pension funds pay fixed annual premiums and in return are reimbursed for future costs arising from higher than expected longevity. “We have started talking to really big companies about insuring away all or part of their longevity risk,” says Sir Mark. “These are enquiries rather than clear quotes but no one else is looking at this field. If you are a big FTSE 100 company the one big risk you have got is longevity.”

Sir Mark stresses Pension Corp’s expertise in this field, with John Coomber and John Fitzpatrick, formerly chief executive and chief financial officer respectively of Swiss Re, among his colleagues. And he is confident that a market in longevity risk is about to emerge, with hedge funds keen to trade the nascent asset class.

“We insure longevity and then we lay off the risk with reinsurers, and ultimately investors take it. We are discovering that there is a market for longevity. We think there is going to be tremendous activity,” he enthuses, warming to his task anew.

Pension Corporation

Founded: October 2006 with the incorporation of Pension Insurance Corporation

Pension assets under stewardship: £4.8bn (€6bn, $9.3bn)

Committed capital: £1bn (May 2008)

Investors include: Royal Bank of Scotland, HBOS, Swiss Re and a number of other institutions

Curriculum Vitae – Sir Mark Weinberg

Born: 1931

1961: Founder, Abbey Life Assurance Company

1971: Founder, Hambro Life Assurance (subsequently called Allied Dunbar)

1971: Managing director, Hambro Life Assurance

1984-1990: Chairman, Allied Dunbar and director of BAT

1985-1990: Deputy chairman of Securities and Investment Board

1991: Founder, St James’s Place with Lord Rothschild and Mike Wilson

1991: Chairman (until 2005) and now president, St James’s Place

2006: Chairman, Pension Corporation

2006: Executive chairman Synergy Insurance Services

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The risks associated with longevity are here to stay, and dealing with them as soon as possible will lead to a far better outcome than simply hoping they will disappear in time.

When Jeanne Calment’s lawyer agreed to pay her an annual income worth one-tenth of the value of her flat on the understanding that he would inherit the property on her death, it seemed like a shrewd bargain. Born in France in 1875, Madame Calment was 90 years old at the time and it seemed unlikely she had much longer to go on this particular journey. Unfortunately, bearing testament to perhaps one of the most misjudged investment decisions ever, Jeanne went on to live to the ripe old age of 122, dying only in 1997. Along the way, she also became the oldest rap artist ever, releasing an album at 121, but that is unlikely to have provided much consolation to her poor aforementioned lawyer. By then, he had long since died and his widow was still making the payments.

It’s a situation humourlessly reminiscent of reality for many pension schemes. For individuals, increased longevity is desirable and it is of little surprise, therefore, that society spends a significant percentage of GDP annually on healthcare and medical research to ensure that we all have longer and healthier lives. But, like Madame Calment, living longer can often also create large unanticipated costs and it is clear this is seriously impacting the finances of pension funds and their sponsors.

In a field typified by extremes, the American civil war veterans’ pension fund – one of the earliest – is another case in point. Originally set up during the war to pay pensions to disabled veterans, the scheme was gradually extended to include all veterans and their dependants, making its final payment only in 2004 – nearly 140 years after the war ended. By then, the scheme had cost the US government hundreds of billions in today’s dollars, well exceeding the original cost of the war, and at its peak in the early 1890s, had even constituted over 40% of the annual federal budget.

It’s a stark warning for many pension schemes and their corporate sponsors today. Ever since the German chancellor Otto von Bismarck thought he’d pulled off a politically brilliant move back in 1889 by promising pensions at age 70 when the average German lived to less than 50 years, the continual improvements in life expectancies have rapidly unravelled the best laid pension plans. And today, these lie at the heart of the huge liabilities stalking many schemes.

The problem is particularly acute for defined benefit (DB) schemes, as most of these pensions are indexed to inflation and can also be passed on to spouses. The waters are also muddied further by another fundamental problem – for most schemes, liabilities are calculated insufficiently frequently, using out-of-date longevity assumptions and often presenting a less than prudent valuation of the true costs of delivering pensioners full financial security. As people live longer – 15 minutes more for every passing hour, by some estimates – the immediate calculable costs can rise dramatically as outdated assumptions are updated and even more troubling, the current upwards trend shows little sign of levelling off (see chart one).

For their corporate sponsors, the impact is also painful. Though the increased pension fund liabilities are often longer-term than most corporate horizons, they must be carried on the company’s balance sheet, reducing the net asset value and increasing the financial leverage of the company. Moreover, sponsors will likely have to fund at least part of these unexpected costs, giving them an uncertain command over their own cash flow and reducing future distributions to investors.

In recent times, the area has become all the more important because of increased regulatory scrutiny. The Pensions Regulator is now pushing schemes to adopt more realistic mortality assumptions that reflect the latest scientific evidence – a change that could significantly increase their total liabilities by 3% or more for every added year of life expectancy. For the DB industry as a whole, that equates to an additional cost of £27bn. This also presents additional shorter-term risks for sponsors as they may be ordered by regulators to divert extra cash into the scheme to meet these future liabilities via a contribution notice.

So how are trustees and sponsors to manage this new idiosyncratic risk? It’s hard enough to judge your spouse’s mood an hour from now or market returns over the next few years, without taking on the additional burden of estimating the lifespan of all the scheme members under your responsibility – past, present and future.

The answer today is largely a dark art. The current trend is unlikely to be your friend here – longevity improvements have repeatedly defied the hopeful shackles of successive actuarial models, despite the most Orwellian filtering of data by job, medical history and even postcode. The latest models – even if true – give scant comfort. By 2050, a 65-year-old UK male might live to be between 86 and 97 years old, up from 83 today.

Some have suggested that diseases such as obesity and diabetes – typically associated with a passive lifestyle – could save pension plans. But though the incidence of these has been rising for over 25 years now, people are still living longer today than they were 25 years ago. Moreover, society itself has undergone huge behavioural changes that can make owning the risk of longevity ultimately an unrewarding and financially painful bet. The increasing intolerance towards smokers is just one recent example – it is estimated that 400,000 smokers across England and Wales quit since last year’s ban on smoking in public places went into effect.

However, before we start decrying the imminent demise of the pensions industry, there are options. Like any other risk, these uncertainties can also be managed once understood. Moreover, new developments in the marketplace mean that there are now ways of reducing these risks and in some cases, even removing them altogether.

The key is to have a proactive and realistic approach. The ideal solution for most pension funds is a full insurance buyout of all liabilities to a dedicated insurer. This can improve the situation for pension scheme members as these specialist insurers are tightly regulated, operate within strict investment and asset-liability guidelines, and have to hold capital against any extreme losses. The cautious underlying assumptions used do often necessitate a large premium, though this should be balanced against future increases in liabilities and an uncluttered balance sheet for sponsors thereafter.

Partial buyouts are often more affordable and can allow schemes to phase laying off their risk over time. They can also be very effective at enhancing shareholder value for sponsors. It is worth noting that when Delta announced that it was contributing £50m to facilitate the pension fund’s buyout of its pensioner liabilities, the markets rewarded the company with a 10% rise in its share price on the day.

Yet even where buyout may not be affordable or preferable, other cost-effective options are appearing. For example, new products now allow pension funds to insure only the longevity risk of pensioners directly for the first time ever. Uniquely, these longevity insurance products can be scheme-specific, covering pensioners and their dependants for their entire lifespan. This caps the exposure of the liabilities to future longevity improvements and increases the chances of a buyout further down the line.

Whatever the route taken, the key to managing the longevity of pension liabilities is simple. Like any other risk, it needs to be understood and dealt with. Ignore it and schemes risk retreading the painful steps of Madame Calment’s lawyer.

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PENSIONS WEEK: What do you consider to be the biggest issues in longevity today?

JOHN FITZPATRICK: Who owns the risk of longevity? Of course, we all own our own personal risk, and hope to live a long life, but for the defined benefit (DB) pension plans in this country and the corporations that sponsor those plans, it is a significant financial issue.

PETER ELWIN: From an equity investment perspective, the market risk John is talking about is still very unclear. Most companies are under-reserving for mortality. If you were to do it on an insurance company basis, you would get some very different numbers.

The accounting rules do not force companies to do that, and neither do they force companies to use particularly up-to-date assumptions. The Pensions Regulator has suggested a benchmark equivalent to 89 years – 90% of companies are assuming a lower figure.

PW: Is that a case of pension schemes being overly optimistic about shorter life spans?

ELWIN: In the past, there wasn’t the same sort of rigour applied to mortality reserving. There was a general sense that the ostrich approach to pensions was the right one; if you put your head in the sand and hope things get better, then generally they will – and if you look too hard at the numbers it will all seem so awful and everything will then go wrong. The regulatory framework has changed so much over the last four years that it is forcing companies and trustees to take a much more rigorous view of the right assumption.

STEPHEN RICHARDS: For a very long period of time longevity was ignored or forgotten as an assumption. A good example of that is the FRS 17 disclosure standard. It is over 50 pages of how to go about calculating the pensions deficit, and there is not one single mention of pensioner mortality.

DAVID BLAKE: In the past, the actuaries have been the only people who have been able to determine this mysterious figure. What we have realised over the past decade is that longevity is a stochastic process, not the previous deterministic one that the actuaries have assumed, and there is a dispersion of lifetimes around the ‘best guess’ of future life expectancy. Today’s issues are quantifying longevity risk and getting a market price for it, in the same way that we have got a market price for inflation risk or interest rate risk.

In the short term it might be the private sector, but in the long term, where there is a dearth of investors willing to assume that risk, there may well be a role for the state in helping get a longevity market started. This was one of the Pension Commission’s recommendations, that the government could help kickstart a longevity market in a limited way, having released ‘regulatory capital’ in its own books by increasing the state pension age. The pensions act and the pensions bill have been very absent on that.

PW: Is the stochastic model being used across the market now?

KEVIN MCLAUGHLIN: It is starting to get there. More people are realising this is a big issue and that they somehow need to quantify the risk. Most pension schemes are sitting there with lots of risks, so the common question you hear is, ‘which risks should I look at first and what do these risks look like relative to one another?’ That comparison is where the stochastic trends have become very helpful.

GORDON WOO: RMS came into the business essentially to provide stochastic modelling methods for dealing with catastrophes: natural hazards, terrorism, pandemics, and so on. These methods have essentially overtaken the use of traditional actuarial methods, which had been the industry standard before. In the last few years we have done a lot of work on excess mortality risk.

FITZPATRICK: As a company that takes this risk, we would be very interested if such a model was available today. How close are we to having a forward, science-based model that we could use to tweak assumptions and understand the future paths of longevity?

WOO: Increasingly, we have more information about the impact of diseases and mortality, and what we are trying to do is to model, in a granular fashion, from the individual upwards.

One of the important points about trying to model forward is to take into account developments in treatments.

The actuarial profession has been used to using a rear-view mirror. The kind of modelling that those who work in disaster areas do is forward modelling. The environment changes all the time and one needs to take into account these potential advancements in medicine and factor it into future analysis of longevity.

RICHARDS: You need to be careful about population-based trends and reading across to the implications for DB pension schemes, because there is a tremendous difference between a small select group of lives who have a disproportionate share of the benefits, and the population. A good example is a typical pension scheme, in which about 10% of the members will be receiving 50% of all pensions.

In the UK, there is a strong correlation between obesity and socio-economic groups: social class five has the highest obesity rates, with social class one having the lowest. Social class one is where most of your DB liability is going to be concentrated. A typical scheme will probably have all of its senior management possibly receiving half of all pensions in social class one, with next to nobody in social class five.

ELWIN: I think shareholders have not got to grips with this at all. You can say to them that the people in the pension scheme are 45-year-old joggers who are getting thinner, not fatter, and they are going to live forever, but they find that very hard to price in.

FITZPATRICK: Stephen and Gordon have said we cannot look at population statistics for what will happen in a DB pension fund, but even in the last 28 years obesity has developed dramatically in this country. Yet the improvement statistics show the longevity for 65-year-old males increasing by 1.2% a year, and the females about 0.7% per year. Even in the population statistics you still see an underlying improvement in longevity, and if what you are saying is that it is even more distant to look at the difference between what happens in a fund and the population, it starts to raise questions about some of the products that people are putting forward; population indexes as a way to hedge, for example.

MCLAUGHLIN: There are factors that may slow down longevity improvements, but what you are not factoring in are the things that will keep improving it; the increases in lifestyle, medicine and research. You could look at the statistics showing there are more scientists around today than in the past, and they are all interested in longevity and research.

If you look at the trends of the last 200 years for life expectancy, it has been going up. The only thing that has impacted in a big way has been economic downturns, as happened in Russia, but other than that you would have to envisage people becoming disinterested in life, which would require very bleak circumstances.

PW: What will happen in the UK economy if longevity is not priced accurately?

BLAKE: There is going to be a massive unanticipated transfer of resources to old people, because the state will have to come in and bail out pension funds or insurance companies that haven’t sufficiently reserved. If you’ve got declining fertility, and a younger generation suffering from obesity and dying out sooner rather than later, you are going to have a massive imbalance between the elderly population and the young population of taxpayers, and they are not going to willingly accept the rise in taxes that would be needed to deal with this problem.

RICHARDS: In the short term we will see reduced corporate profits, as money is not available to give to shareholders, but is being used to shore up pension funds.

FITZPATRICK: Some of these older people voluntarily choose, or their economic circumstances will require them to work longer and be productive members of society for a longer period of time, while contributing tax money. Is one of the answers a higher retirement age over time, creeping up as people live longer?

BLAKE: That is the easiest solution to this problem, but it is quite hard in a system with a welfare state where most British men do not enter retirement from a position of work, they enter from a position of disability. Less than half of men aged 60 to 65 are in productive work now. It is slightly higher in ages 55 to 60.

At the same time, you are going to have a ‘them and us’ between public sector and private sector workers. The public sector worker is retiring at 60 on index-linked pensions, guaranteed by the government. That means 20% of the workforce have got 60% of the pension entitlements in this country. There’s the weakening of the DB entitlements of the private sector workers with lower contributions going into the defined contribution (DC) plans, while private sector workers are still having to pay the taxes to bail out the public sector workers. A quarter of council tax payments go towards paying the deficits in local authority pension schemes. This is unsustainable.

ELWIN: We’re beginning to see more and more press stories about MPs pensions, local authority pensions, and unfunded state pension deficits. It will be exacerbated by the fact that you have got that division within private sector companies as well. You have got a whole generation of people joining the workforce who are getting what is fundamentally low quality DC benefits, not because DC is inherently bad, but simply because it is funded at a third or 25% of the level of DB schemes.

You will have people in their 30s working alongside each other, where one guy, who has been there all his life, has 10 years of DB accruals, which are nicely protected, and the other guy who joined the company more recently with the same pay and benefits, except for the pension.

MCLAUGHLIN: We all know the current DB schemes are not going to work – either more money has to go in or they need more risk-based products and longevity protection. We are already talking about the private sector versus the public sector, and now it is very obvious that the public sector have these gold-plated pension funds. We have already seen the emergence of the risk transfer market in both longevity and pension buyouts.

FITZPATRICK: In the private sector it seems we are going towards DC plans. People will still need to have a steady income in retirement, so they will need to have an insurance market that is going to provide annuities to people. Obviously, insurers are going to need to have the science available to be able to ascertain what the probabilities are in a better way. They also need the market of investors willing to buy the risk at some point because of the need to hedge the risk.

ELWIN: There does seem to be a major issue if you get everybody in society on a DC-type structure, where the individuals bear all the risks. For me, I cannot hedge my own longevity, apart from saying ‘I am going to live to 110’, because I do not want to have my fund run out at 108 and be begging on the streets for the last two years of my life. If you have got a pool of people in a DB scheme, you can hedge the average.

BLAKE: You need better-designed annuities to encourage people away from their aversion to giving up an apparently large lump sum for a seemingly small annuity, which is actually quite fairly priced. We have a lot of behavioural problems to overcome in getting people to recognise the value of annuities. The current design of DC pension plans is very poor. It does not deal with the integrated relationship between an accumulation stage and the decumulation stage.

RICHARDS: The reason annuities look expensive is because people retire too young. If you retire aged 70, an annuity looks like a very good value product in terms of converting your cash into an income, because what you get back looks really good.

FITZPATRICK: The bigger problem is the average person underestimates his own longevity. The surveys indicate people do not believe they are going live as long as they do. They underestimate this by three to six years.

PW: Can you still retire at 70, or are you likely to be out of a job before that?

RICHARDS: We still see people working all the way up to their late 60s. I was doing some work for one pension provider where there was a very clear relationship between later retirement and longevity. I originally thought it was a socio-economic effect – where the better-educated people working with their mind could delay retirement – but even allowing for socio-economic effects through postcode profiling, it was still very clear that those who retired later managed to live longer.

BLAKE: If everyone is going to become part and parcel of solving this problem, companies are going to have to become far more innovative in the way they deal with their elderly workforce, and how they try to keep them active; obviously not in the same stressful jobs that they had when they were much younger, but to find roles for them.

A board member at Prudential has recommended that the private sector could provide annuities up to a certain age, such as 90, and then the state could take over.

ELWIN: The risk is that in 100 years’ time, people will be living to much greater ages and they will look back at a promise like that and think, ‘Fancy imagining that everyone was going to die at 100 – what madness’.

WOO: Japan has the largest number of centenarians and super-centenarians (those who live to 110), but the cost would still be comparatively small. At least it deals with this whole issue of risk, namely that only a small percentage of the population are going to survive to 100, but those who are will have problems no matter how well they have managed their resources in a DC scheme.

BLAKE: The Department for Work and Pensions (DWP) has just issued a risk-sharing consultation document, which only talks about how pension plan members in companies can share risk among themselves. It has nothing to say about the role of the state in hedging aggregate risks, such as longevity risk or inflation risk. We need the private sector to start developing products that can be used to transfer this risk to the final holders of the risk, hedge funds or endowments, or other longer-term investors.

RICHARDS: The government is the biggest ostrich when it comes to this risk. When you look at their own accounting for the costs of public sector pensions, there is a massive underacknowledgment of cost.

PW: What should pension schemes be doing to help themselves out when it comes to this longevity risk?

BLAKE: People need to be looking at designs of instruments that allow this risk to be transferred to the capital markets. There is clearly a role for buyout companies, but ultimately there is not enough shareholder capital in those organisations, because the size of the risk is so large – £800bn in the UK alone.

FITZPATRICK: The investors only want certain things. They like the population index of England and Wales, and yet we have heard the experts here tell us that it is not helpful to a pension fund directly. Investors also like very short durations, such as an index of 10 years, which doesn’t do much for a DB pension plan.

How the system may develop is having the pension insurers underwriting the risk of the individual pension plan. They have actuaries and experts to look at those risks, underwrite them, develop a huge pool and try to get that pool as broadly diversified as possible so that it is relatively close to whatever the population may be. Then they can use some of the tools and techniques that investment banks have been developing, using indices and shorter duration instruments.

BLAKE: You have got duration swaps at 30 or 40 years, and inflation swaps at 30 or 40 years. These are pretty illiquid markets and the spreads are quite narrow. We know that it is possible to go out to these dimensions, but the issue is that longevity risk has only recently been recognised.

FITZPATRICK: It would be helpful if the government issued longer-dated bonds. All pension insurers would be big buyers of long-dated government bonds, and given the fiscal situation of the country, it surprises me that the Treasury is not issuing longer-dated bonds.

MCLAUGHLIN: The risks should be borne by the people with the most capacity to bear them. This is what the new longevity market and the new insurance market is trying to do. On the index-linked products mentioned earlier, one thing about inflation is that, if I buy the correct duration, it is an exact match for my liability. I cannot say the same thing about the index-based longevity products. The index product will probably be very useful for the person in the middle who is aggregating that risk; if somebody aggregates the risk they will end up more like the population and they can start to use this type of product.

BLAKE: The pension funds want 100% hedge protection and 100% hedge effectiveness on whatever risk they are transferring. The capital markets – because they are interested in creating liquidity – cannot give you that perfect match, but you can get 85%-86% hedge effectiveness using capital market instruments and if you get your hedge ratios right. There is a learning exercise here: for a much reduced price, and for the benefit of a lot more liquidity, you can achieve hedge effectiveness up to 85%-86%, but you are not going to get 100% hedge effectiveness because you won’t then get the liquidity with these bespoke solutions.

MCLAUGHLIN: The question then is how does the market develop? Do pension funds go directly to these index-based products, or do they go through an aggregator in the middle? So far, it has been the aggregate in the middle that is doing all the business.

BLAKE: Another issue is the lack of transparency over pricing. First, you do not know whether this is a good deal for investors or not, because there is not a public price for this transfer of risk. Second, it is dependent on the shareholder capacity within insurance companies, which is limited. You are not going to get the £800bn transferred into the markets through that route. The whole point about the capital markets is that you have got pricing transparency.

FITZPATRICK: There are ways for pension funds to determine whether a longevity insurance policy is a good deal or not. They can compare it to a partial buyout of their pensioners in payment; they can calculate the value of keeping 100% of their assets earning in the fund and determine what it is worth to them in present value. There is no doubt they can value it today versus keeping the risk.

PW: Do buyouts represent value for money?

RICHARDS: The reason a lot of buyout prices seem expensive to scheme trustees is because their starting point is under-reserved. There is a relatively small gap between the extra cost of regulation in a life company and the fair cost of the liabilities being taken on. The rest of the gap is because they are under-reserving for the liability in the scheme in the first place.

FITZPATRICK: When you say reserving, Steven, you really mean that the accounting rules do not reflect the economic reality of the liability. Peter, you have written about this extensively, and the Accounting Standards Board (ASB) came out with a proposal recently on moving the accounting assumptions more towards economic reality. Where does that stand?

ELWIN: In the long grass!

BLAKE: What about the pressure in Europe to have Solvency II applied to British pension plans?

ELWIN: That is part of the thicket it has all gone into. There are two slow trains running: one is Solvency II, and there is a big political dispute about that. Some governments and organisations are lobbying for it and some against, including the British government.

One of the reasons why the DWP is saying it is tightening the regulatory framework is as a sop to Europe to say that we have got a tight regulatory framework and don’t need Solvency II. The accounting train is that the ASB in the UK proposed various things, including using a much lower discount rate to evaluate pension liabilities in accounts, which would get you more towards the insurance company view. That was a think piece that has not been adopted by the international ASB, which ultimately sets standards for the UK. They have not got that proposal on their agenda at all, and no prospect of it coming on in the next five years.

MCLAUGHLIN: For me, accounting is not the issue, it is the reserving and cash you hold aside. You can run a pension fund in deficit for a number of years, you do not have to put the full cost in – in fact, you do not have to put the risk-related cost into the pension fund, so who is bearing that risk? It is the system, the company shareholders, the Pension Protection Fund (PPF) and the individual scheme members who would lose out.

There are a lot of pressures from the Pensions Regulator. One way is through strengthened longevity assumptions, and the other is through funding targets. You are starting to see a number of schemes where the gap between insurance-reserving basis and the company-reserving basis is falling away to almost zero. Once you get to that point it becomes a question of whose balance sheet it should be on, the company or the insurers.

If you started from scratch, there’s no way you would design the current funding pension rules that exist in the UK today, because it doesn’t work for the whole system. The funding issue is being solved through the back door. Two or three years ago, pension buyout was very expensive, but that isn’t the case today because of the competition in the market and some new supplies of capital coming through.

ELWIN: An interesting case in point recently was Delta, a small cap engineering company. They bought out a big chunk of their pension scheme, and the share price reacted very positively. There is a growing realisation among institutional investors that if you go through a pension buyout process, you are not necessarily being mugged by a knowledgeable insurance company.

RICHARDS: There are so many competitors in the buyout market, you can go to the market and get 10 quotes for your buyer, and by definition it cannot be overcharging.

BLAKE: You have got a combination of risks being transferred and you do not know the price of the individual ones. I, as an academic, cannot get quotes to do economic research on whether this is good value for money.

RICHARDS: Your average finance director just wants shot of the risks.

ELWIN: He does, which is fair enough. Institutional investors are feeling slightly more confident there is genuine competition in the buyout market and you’re not being ripped off, but it is still very difficult to look at a company that hasn’t yet done it. I spend a lot of my time trying to estimate the real economic value of the liability for a particular company and what it would cost the company and shareholders to get shot of the risk.

Then you can start trying to do some cost benefit analysis, but it is almost impossible for two reasons. One, because the accounting is still fairly shot to pieces, and two, although there is now a competitive market, each deal is a ‘behind closed doors’ transaction, often with confidentiality agreements. You often cannot even find out who came second in the auction, let alone what they were bidding and how close it was from the winning bid.

RICHARDS: I advised one scheme that was able to get 21 quotes for a buyout price; that is proof of a competitive market.

BLAKE: You can have a very competitive market with just two players, and you can have a very uncompetitive market with 100 players. It all depends on what is going on underneath.

MCLAUGHLIN: One thing that worries me about the situation is the regulator coming out with very firm views on longevity, and stating that you have to move noncore plus a floor for no particular reason, other than they think that seems to be a sensible answer today. We all know what has happened in longevity, and what is a sensible answer today will not be in a few years’ time.

The best thing the regulator can do is stand back and let the market develop. If we end up having everybody focused on this one trigger, then you may have 20 firms bidding, knowing that the pension funds have to reserve against the regulator’s basis.

BLAKE: When the swaps market started, the spreads were very wide, but that information was recorded and in the public domain. Over time, as competition got more intense, those spreads came right down. That is the beauty of the capital markets. We don’t have anything like that here at the moment.

MCLAUGHLIN: It will happen; it has to happen. If I was a large company I’m not sure I would want to transfer my risk to an insurance balance sheet that has huge risk exposure itself. The trustees might not be very happy with that. The aggregators will be the ones that have most incentive to deal with the investors, because the pressures will be on them sooner than on a company-sponsored pension fund.

PW: How do you see the UK pensions markets developing over the next 10 years?

MCLAUGHLIN: The private sector is very focused on pensions as an issue. They have had a lot of pain over the last 10 or 15 years; they are really getting to grips with it, and there is a huge desire to lock down risk.

There are also a lot of pressures from accounting, the regulator and funding, and in the backdrop you have got two-thirds of DB schemes closed. The only thing that causes me concern is around the longevity point, and whether a capital market solution will develop. Maybe there is also inflation risk, especially if the government will not issue more long-dated index-linked debt, but again, there are lots of good reasons why it should not.

FITZPATRICK: The surveys show that somewhere around 62% of DB pension plans will get rid of this risk in the next 10 years. The pension insurers will take the risk on, and from there, they will have the motivation to figure out how to manage this risk and hedge it in the way that the insurance industry has successfully managed. The investors will come in and will need a lot of yield, because there is not enough data and transactions. Later, those market spreads will come down, and the pension insurance companies will issue the securities, and we will have a system that starts to make it possible.

ELWIN: The risk, from a societal point of view, is that private companies are taking their own steps to derisk their balance sheets. We made the comment that somewhere between 60% and 80% of schemes are closed to new entrants. As soon as you close a scheme to new entrants, you automatically create a scheme that is turning itself into a much harder-edged liability.

Through staff churn alone, over a five-year term you will turn the 30% of actives in your scheme into 5%. As soon as you have done that, it ceases to be the HR issue you thought it was originally, and becomes more of an ‘arm’s length’ debt relationship, with some seriously toxic characteristics.

FITZPATRICK: We are finding that as M&A transactions come up, the buyer will not take the DB pension liability. The seller realises that he is trying to get maximum value for his core business, and usually there is a trade where a pension insurance company can come in and take the pension liability, and the buyer and seller will figure out how to share whatever cost that might be. The Delta case is very interesting, as they had to put £50m into the plan in order to get rid of the risk of their pensioners in payment, of £450m. It caused the market price of their stock to go up by 10% on the day and it had been rising before that, such that some of this became self-financing, one would argue.

WOO: Were you surprised by this change to the Delta share price?

ELWIN: Yes, based on historic precedent, if a company did that two or three years ago the share price would go down, because investors would feel there was value going away from them to somebody else for no good reason.

More recently, we have seen transactions like Rank, which bought out the whole scheme with the Goldman Sachs insurance company, and the share price reaction was broadly neutral. Delta was probably the first one where you saw a positive share price move, which could probably be attributed to the pension deal. We may see more of those, but it is almost impossible to predict.

RICHARDS: We will continue to see nasty surprises from corporate pension schemes over the next decade. There have been many over the last few years, and that is going to continue.

ELWIN: You have to go through a much more painful process in the UK to get shot of your scheme and to put it on to the PPF than you do in the US. In the US you can go into Chapter 11 and hand it over and then resurrect yourself. In the UK, you have essentially got to become insolvent, and that is a much heavier burden for shareholders to bear.

FITZPATRICK: The real issue is that the last solvent pension fund will have to pay the entire levy for whatever is in the PPF. That will not be a sustainable situation.

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The only function of economic forecasting, the late American economist J K Galbraith once noted, was to make astrology look respectable. And knowingly or not, it is a belief endemic to the private equity industry.

The overriding concern is to find companies with hidden value – whether on their balance sheet or in their intellectual property – and extract it in the most efficient way possible. Every risk is carefully studied and where possible, mitigated. Lines of credit are negotiated at known terms to suit the investor’s horizon. Capital structures are redrawn to maximise efficiency. Balance sheets are scrutinised line by line and operations are streamlined.

There is no obsession within the industry with predicting GDP or any agonising over the evolution of the labour market. These are nebulous questions for economic forecasters to ponder. For the seasoned private equity veteran the wider economy only matters insofar as it determines when the deal is done and when it is exited.

Yet hidden among that otherwise well-managed balance sheet there might be unconstrained liabilities that threaten to undo the most meticulous business plan and expose private equity firms to a whole host of unknown risks – all housed within an often overlooked defined-benefit pension plan.

Though their relationship in the past has resembled awkward teenagers staring mutely across the dance floor, private equity firms and pension funds can no longer choose to shyly look away. Their horizons may be very different – years versus decades – but increasingly, pension schemes are a growing factor in private equity transactions. A potentially attractive deal may come unstuck because of the pension fund or worse still, an existing investment may hit difficulties as the full cost of the pension obligation becomes known. The difficult takeover of retailer Boots and the recent troubles at music publisher EMI are but the most visible tip of the proverbial iceberg.

Any views on interest rates over the next five years? Your debt financing may have excellent terms and it may seem a moot point, but the pension fund’s liabilities will swing violently and perhaps for the worse over the next few decades with whatever the prevailing interest rates are.

How about inflation – any thoughts on how it might evolve over the next decade or even the next half century? Many scheme members will likely have index-linked pensions and the burden of payments can quickly become onerous. Figures from the Office of National Statistics show that from 1970 to 2007, annual employer contributions into pension schemes went up a factor of 53 times, and trebled over the last seven years alone.

And what about people living longer? The latest estimates suggest longevity is increasing at the rate of more than a day a week. Nobody minds postponing that inevitable shuffle off the mortal coil but for every year that pensioners live longer, the scheme’s liabilities increase by some 3%.

It is a complex basket of risks and in the short term, changing economic and demographic perceptions can materially alter the valuation of a pension scheme’s liabilities from one day to the next. Even the assets are not immune as many UK pension schemes have over half their assets in equities. This year alone, Aon Consulting estimated that sharp falls in the FTSE caused UK pension deficits to rise by £15bn in a single day in January, and again by £9bn the following morning. In just one week, UK pension schemes lost £40bn, wiping out all the gains made in 2007.

It is a growing headache for many private equity firms, for whom such risks often lie far from familiar territory and who are charged with looking after a broad church of stakeholders, not just pensioners. As the corporate sponsor, they generally have an obligation to fund these unexpected growing costs and the waters are muddied further by sometimes out-of-date actuarial assumptions that can present a less than prudent valuation of the true costs of fully funding the pension scheme’s liabilities. The impact can go far beyond the immediate cashflow hit, filtering through to the profit and loss, lowering profits, increasing the liability on the balance sheet, reducing the net asset value, increasing leverage and ultimately, impacting the exit price.

The area is also coming under increased regulatory scrutiny, with the Pensions Regulator set to gain stronger powers to issue contribution notices and to take into account the resources of the whole group of companies when judging where funding should come from.

However, before we start decrying the paralysis of the private equity industry, there are options. Like any other risk, these uncertainties can also be measured and managed once understood. Moreover, developments in the marketplace mean that there are ways of reducing these risks and in some cases, removing them altogether.

The key is to have a proactive and realistic approach to the risks being carried on the balance sheet. Sponsors need to engage with trustees actively and walk that fine line between the investors’ expectations and the funding needs for the pension scheme.

The ideal solution for most is a full insurance buyout, where the pension liabilities are transferred away to dedicated specialists. This can often improve the situation for pension scheme members as these specialist insurers are tightly regulated, operate within strict investment and asset-liability guidelines, and have to hold capital against any extreme losses.

It also helps troubled sponsors: securing pension liabilities away from balance sheets improves their ability to raise finance and removes the situation where, in a falling equity market with a commensurate fall in the valuation of a scheme’s assets, a sponsor looking to invest in the business might also find trustees coming cap in hand. Above all, it enables management to get on with running the business, free from the peripheral distractions of administering a pension scheme.

However, insurance buyout valuations use more cautious longevity assumptions and paint a truer picture of the hidden arrears, increasing the liabilities and the premium required significantly. It is simply unaffordable for many companies.

But there are alternatives. Schemes can execute partial buyouts for some of their liabilities, such as current pensioners. If that overshoots the budget and the deficit is still too large, there are now innovative corporate solutions to help transfer risk, ranging from taking on the entire scheme and its myriad of liabilities to specific solutions for specific risks.

For example, trustees and sponsors can implement bond or swap-based hedging strategies to nullify the impact of interest rates and inflation on their liabilities and thereby, on the balance sheet. They can outsource the holistic management of assets and liabilities to a third-party fiduciary manager, which will manage them on a real-time basis. There is even a growing market in longevity swaps, allowing people to hedge this idiosyncratic risk.

It is a rapidly evolving environment and with new solutions appearing fast, private equity sponsors can be hopeful of finding innovative ways of managing these new risks on their horizon.

Most importantly, they can go back to finding and building businesses – not reading horoscopes.

Looking into the crystal ball: forecasting life expectancy can be merely educated guesswork

For those who watch life from the sidelines, increased longevity is a good thing. But living longer also costs more and its impact on the finances of pension funds and their sponsors can be crippling, write Andrew Lloyd and Amarendra Swarup

In a field typified by extremes, the American Civil War veterans’ pension fund – one of the earliest – is a case in point. Originally set up during the war to pay pensions to disabled veterans, the scheme was gradually extended to include all veterans and their dependents, making its final payment in 2004 – nearly 140 years after the war ended.

The poster child for this longevity was Alberta Stewart, who in 1927 aged 21, married an 81-year-old veteran. Although her husband died soon afterwards, Alberta carried on drawing her widow’s pension right to the grand old age of 98. By then, the scheme had cost the US government hundreds of billions in today’s dollars, well exceeding the original cost of the war, and at its peak in the early 1890s, had even constituted more than 40% of the annual federal budget.

It is a stark warning for many pension schemes and their corporate sponsors today. Ever since the German Chancellor Otto von Bismarck thought he had pulled a fast one in 1889 by promising pensions at 70 when the average German lived to less than 50 years, the continual improvements in life expectancies have rapidly unravelled the best laid of pension plans and now lie at the heart of the huge liabilities stalking many schemes.

The problem is particularly acute for defined-benefit schemes, as most of these pensions are index linked and can also be passed on to spouses. As people live longer – 15 minutes more for every passing hour, by some estimates – the immediate calculable costs can rise substantially as outdated assumptions are updated and the upwards trend shows little sign of levelling off.

For corporate sponsors, the impact is doubly painful – there is an expectation that they will likely have to fund at least part of these unexpected costs, reducing their profitability and any distributions to investors; and the increased pension fund liabilities must also be carried on the company’s balance sheet, reducing the net asset value and increasing financial leverage.

While the liabilities are often longer term than most investment horizons, private equity firms are particularly vulnerable as the uncertain command a company may have over its own cashflow can significantly impact any potential mergers and acquisitions transactions and even cause a good investment to rapidly turn sour as the true cost of the pension obligations starts to emerge.

In recent times, the area has become all the more topical because of the increased regulatory scrutiny in the area. The Pensions Regulator is pushing schemes to adopt tougher mortality assumptions – a change that could significantly increase their total liabilities by 3% or more for every added year of life expectancy. For the private equity industry, this presents additional shorter-term risks as they may be ordered by regulators to divert extra cash into the scheme to meet these future liabilities or even investigated.

So how is an investor to manage this new idiosyncratic risk and cope with the additional burden of judging the lifespan of personnel – past, present and future?

The answer is a dark art. The current trend is unlikely to be your friend here – longevity improvements have repeatedly defied the hopeful shackles of successive actuarial models, despite the most Orwellian filtering of data by job, medical history and even postcode. The latest models – even if true – give scant comfort. By 2050, a 65 year-old UK male might live to be between 86 and 97 years old, up from 83 today.

However, there are ways of removing these risks. The gold-plated solution is a full insurance buyout of all liabilities to a dedicated insurer – often expensive but to be measured against future liabilities and a now uncluttered balance sheet. In the recently announced buyout of steel products group Delta, the pensioner liabilities of £450m (€569m) represented an effectively leveraged investment in longevity for the company, which had a rather more modest £200m market cap – a point not lost on the markets, which rewarded Delta with a 10% rise in its share price the following morning.

And other cost-effective options are appearing. For example, a product recently introduced by Pension Corporation allows pension funds to hedge their longevity risk directly, thereby removing the risk that liabilities and funding requirements will go up with future longevity improvements.

Whatever the route taken, with the problem of actuarial uncertainties removed, investors no longer have to stay glued to the crystal ball fretting about the tenacity of their pensioners’ joie de vivre.

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Pension Corporation, a leading provider of pension solutions, is delighted to announce that John Coomber is to join the management team as Executive Vice Chairman.

Mr Coomber was CEO of Swiss Re. During his tenure, he built Swiss Re into the largest life reinsurance company in the world. He is a Non-executive Director of Swiss Re, which is a Pension Corporation shareholder. Mr Coomber qualified as an actuary in 1974.

In his role, Mr Coomber will be responsible specifically for managing the day-to-day operations and finances of Pension Insurance Corporation alongside Edmund Truell, Chief Executive Officer of Pension Corporation.

Pension Corporation provides insurance buy-out, pension fund sponsorship, longevity insurance and other risk transfer and asset liability management solutions. Pension Insurance Corporation is a fully authorised insurance company regulated by the FSA.

Edmund Truell, Chief Executive Officer of Pension Corporation, commented:

“I am delighted to welcome John Coomber to the management team of Pension Corporation. John brings unparalleled experience from running a worldwide life reinsurance company which will be vital to Pension Corporation as we develop our business to achieve our goal of being the leading underwriter of pension risks.”

Sir Mark Weinberg, Chairman of Pension Corporation, said:

“As an internationally recognised leader of the insurance industry, John’s unrivalled experience will contribute strongly to Pension Corporation’s strategy. As this market increases in size and importance, John will be pivotal in ensuring Pension Corporation remains at the forefront of industry innovation.”

John Coomber commented on his new role:

“Pension Corporation brings an extremely innovative approach to the traditional pension buyout arena. The group’s evolution requires the management and growth of our dedicated and specialist team as we provide ways to transfer risk away from pension funds and I am looking forward to this new challenge.”

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies, including The Royal Bank of Scotland, HBOS and Swiss Re. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, and Bob Scott, former Group Chief Executive of Aviva. Pension Corporation has a total of £4.75 billion of pension assets under its stewardship.

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Dear Sir / Madam,

Pension Corporation is the umbrella brand for Pension Insurance Corporation Limited, Pension Corporation Investments and Pension Security Insurance Corporation Limited (“Pension Corporation”) and is pleased to have the opportunity to respond to this consultation.

Pension Corporation provides the following solutions to UK defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members‘ benefits by strengthening and stabilising their financial position, and assists corporate sponsors by reducing the volatility of the true funding gap between assets and liabilities.

Pension Corporation also has investments in, or owns outright, a number of corporate sponsors of defined benefit pension schemes. It views itself as a “professional sponsor” whose aim is to ensure the schemes‘ investments and liabilities are de-risked and the scheme reaches full funding.

Currently Pension Corporation has over total of £4.7 billion of pensions under its ownership or stewardship.

Executive Summary

• Pension Corporation fully supports the Government‘s aim and the Pensions Regulator‘s objective of protecting the full benefits of members of defined benefit schemes.
• The main risk to defined benefit pension schemes is employer failure.
• There must be a clear recognition by the Pensions Regulator and DWP that a legal duty of care is owed to the corporate sponsor by the Trustees for their actions.
• Innovation is key to bringing in new and improved solutions to the very real issues that face the c. £1 trillion of UK defined benefit scheme liabilities that remain outstanding.
• The proposed changes are neither proportionate nor necessary to deal with the potential risk.
• Any changes to regulation should be by way of primary legislation.

Introduction

Currently, every risk a pension scheme takes, such as investment risk, is ultimately borne by the sponsor of the scheme. The only risk the scheme bears is the risk of sponsor insolvency. Neither Government nor Regulators are able to prevent such risks crystallising as highlighted in the cases of Northern Rock and MG Rover.

Inappropriate decisions by trustees, increasingly influenced by the views of the Pensions Regulator, can have a major impact on the continued solvency of the sponsor company. There must therefore be a clear recognition by the Pensions Regulator and Government that a legal duty of care is owed by the Trustees to the corporate sponsor, for their actions.

New Business Models and innovation

We applaud the Government‘s stated intent not to stifle innovation and development in this market.

Innovation is key to bringing in new and improved solutions to the very real issues that face the c. £1 trillion of UK defined benefit scheme liabilities that remain outstanding. For example, some of the major factors that may have a significantly detrimental effect on pensions, such as inflation risk, can now be hedged away using liquid financial markets that did not exist ten years ago. This has allowed the risk of inflation to be controlled by pension schemes, providing greater security of payment for scheme members and greater certainty as to the scheme costs for the employer.

Pension Corporation is at the forefront of developing products to reduce risk in today‘s UK pensions market. Our longevity insurance is an example of a product which allows the longevity risk inherent in pension schemes to be limited. Again, this assists in de-risking the pension scheme for the benefit of both scheme members and corporate sponsors. We believe that the Government and the Pensions Regulator should encourage this type of innovation.

Pension scheme investment has been the subject of much criticism, not least, because it tends to react slowly to changing markets and thus less able to take advantage of market opportunities. A recent survey by Aon found that when asked to rank the most important or challenging issues facing their scheme in the future, over half (51 per cent.) of trustees stated investment as the most important challenge.

Pension Corporation has specialist Asset and Liability Management skills available to pension schemes, bringing together the latest and best financial thinking and products to manage asset allocation and returns as well as risks and liabilities. Such a service incorporates real-time scheme performance information capability, designed to aid efficient decision-making. The application of these specialist skills to the pensions market and the concomitant improvement in the risk adjusted return expectations should be welcomed by those genuinely interested in securing scheme members‘ benefits.

Abuse by New Business Models

As we have already told the Minister, we are happy to identify ways in which irresponsible market entrants may abuse the “corporate solution” model, which we and others such as Citibank have developed, and to identify ways in which they may be checked.

Having carefully considered the consultation and proposals however, in our view it is too simplistic to say that new business models increase the risk to members and the PPF. As we noted above, the principal risk outside of the pension scheme is in fact the economic risk of the corporate sponsor.

If the Government is concerned that a sponsoring employer could be removed and replaced by an entity with no resources, and indeed in our view this is the most likely method of abuse, we would suggest that this may be dealt with in a different manner than via the amendment of the tried and tested anti-avoidance and clearance system.

For example, a requirement could be introduced that if any sponsoring employer ceases, completely or substantially, to carry on an operating business, then security acceptable to the PPF must be put in place to the level of the self-sufficiency basis or the value of the business, which ever is the lowest. This would provide both members and the PPF with security without placing unnecessary burdens on business.

Making Profits from Pension Schemes

It is, of course, naive to believe it is only the new business models that seek to make a profit from pensions. Pension Buy-out providers have in the past benefited from the lack of competition and been able to make attractive profits. There are also a wide array of advisers; actuaries, lawyers, covenant specialists, pension managers, not to mention independent trustee firms, who all make not just a profit, but a living, from pension schemes and who, of course, take no downside risk.

Business exists to make profit; no profit means no employers and thus no retirement provision in the private sector and no taxes to pay for the public sector.

The suggestion in the consultation seems to be that scheme surplus should not in fact be returned to the sponsor. We note that most scheme rules deal with the distribution of surplus and in view of the fact that the sponsor bears all the investment risk it seems to be only a matter of natural justice that a surplus, if allowed by the rules, returns to the sponsoring employer.

Without the opportunity for any surplus to be returned to the sponsoring employer there is no incentive for sponsors to fund at a level which that may risk surplus being trapped in pension schemes. It is for this very reason, of course, that many pension schemes have established contingent funding vehicles (e.g. escrow accounts) which, whilst belonging to the sponsor, provide additional security to the scheme.

We also note that pension schemes were set up to pay pensions as they fell due and not to purchase annuity policies. The clear push by the Pensions Regulator for pension schemes to buy-out when possible will in fact result in the closure of more defined benefit schemes and reduce the opportunity for other employees to participate in defined benefit pension schemes. In addition, it ignores the potential increases in members‘ benefits from surplus sharing agreements that can be put in place along with an appropriately risk-averse asset and liability management strategy.

Offshore Entities

We note the concerns expressed in the consultation paper about moving the employer or pension scheme to another jurisdiction. We accept that moving the only employer offshore would be detrimental to the pension scheme in that it would no longer be eligible for the Pension Protection Fund.

However, the implication appears to be that offshore operations that may own or be investors in sponsors are somehow less trustworthy than those in the UK. Offshore operations are now standard practice in business for a host of legitimate operational reasons. It is in keeping with the principle of free movement of goods and capital that business should be allowed to conduct its affairs in this way.

Effective financial regulators exist in most of these offshore locations and it is therefore incorrect to imply that all offshore operations are in some way less reputable than the U.K.

In view of the fact that the Pensions Regulator has consistently said its powers will work on overseas entities, and the successful issue of Financial Support Directions to a company based in Bermuda but under US Court jurisdiction, (not to mention the front line protection for members of pension schemes being in fact the trustees, followed by the statutory advisers with whistle-blowing duties), we do not believe further protection in respect of the potential moves overseas is necessary

Pension Scheme Security

Pension Corporation believes that there is a real risk, in the near to medium term, of the catastrophic failure of the corporate sponsors of one or more very large pension schemes as a result of the economic downturn and credit crunch. This would undermine the security of the members of those pension funds and in turn has implications for the Pension Protection Fund.

This potential for catastrophic failure is of course recognised in the PPF‘s levy which now includes provision for such a risk.

Nothing in the current proposals by DWP targets the fundamental structural risks inherent in UK pension schemes.

The Trust Model

The Trust model relies on the willingness of scheme members and employees to give up their time voluntarily and take on the increasingly onerous regulatory burden of running defined benefit pension schemes.

Whilst trustees are required to have sufficient knowledge and understanding to run their schemes, this often means in practice a heavy reliance on professional advisers.

Without wishing to take anything away from the thousands of voluntary trustees, we believe it is time to consider professionalising the trusteeship of the more than £1 trillion of pension funds in order to secure member benefits in full.

Other ways to reduce the risk to both the scheme and employer covenant should be considered. For example:

• pension schemes should be encouraged to use the services of a professional pension sponsor, who employs pensions experts and can advise on managing the risks as well as bear the economic consequences of such advice being wrong;
• the development of best practice where decisions on policy are made at short intervals (which is more practicable as more professional trustees are used) and implemented rapidly, preferably by the use of real-time investment management techniques now available in the market;
• investment adviser advice should be challenged and performance linked fees encouraged;
• small pension schemes should be encouraged to merge with other schemes in order to benefit from economies of scale;
• the historic duty of care of trustees to the sponsoring employer should be clarified and strengthened; and
• the statement of investment principles should be part of Scheme Specific Funding and as such agreed with the sponsoring employer, rather than just consulted upon.

Implementing Pensions Regulation

The Pensions Regulator was introduced following Alan Pickering‘s report “A simpler way to better pensions” published in 2002 and the Government‘s White Paper “Simplicity, Security and Choice”.

The Pickering report spoke of a new principles based legislation, “We envisage that the level of regulations would be kept to a minimum” with a “small number of codes of practice/guidance” but saying “care would need to be taken that the Codes did not become legislation through the back door.”

Life is always more complex than theory and, in the event, there have been over 50 sets of regulations impacting occupational pensions schemes since the Pensions Act 2004 was passed and 11 Codes of Practice, supported by over 25 guidance documents; making it difficult to argue that the Codes have not become legislation by the back door.

On the 6 July 2004 when introducing the then Pensions Bill to the House of Lords Baroness Hollis said;
“The [Better Regulation] task force has also recommended that regulators should, whenever and wherever possible, adhere to the principles of better regulation. Regulators should be accountable, proportionate, targeted, consistent and transparent in their approach to regulation. I am sure that noble Lords will want to measure our proposals by those five standards. We intend that the Pensions Regulator will embed these principles in its design, working processes and overall approach to the effective regulation of pension schemes.”

Pension Corporation fully supports the Government‘s aim and the Pension Regulator‘s objective of protecting the full benefits of members of defined benefit pension schemes. In order to encourage sponsors and others to contribute to this process, the principles of better regulation, set out above, need to be seen to be working and to be enforced by DWP intervention if necessary. We believe that only in this way can all parties be certain they understand when the Pensions Regulator will act and why, and that they will be treated fairly and consistently, and can make long-term plans accordingly.

• We encourage the DWP to use this opportunity to provide such a framework by:
• embedding the Better Regulation Principles within the statutory framework of the Pensions Regulator;
• allowing an immediate appeal from a Determination to the High Court;
• requiring the Pensions Regulator to publish its policy on exercising its powers; and
• requiring the Pensions Regulator to publish a Regulatory Impact Assessment when it proposes new codes or guidance.

The Proposed Amendments to Pensions Regulation

We question whether the proposed amendments to pensions regulation are truly justified when, thus far to our knowledge, no such abusive business models have been identified.

We have serious concerns over the proposal to change the “intent” test to one of “effect” when the Pensions Regulator is issuing a Contribution Notice. This change, effectively to one of strict liability, combined with the weaknesses in process identified above, will mean an increase in Clearance applications and a reduction in investment in corporate sponsors of defined benefit schemes.

The argument that it is hard for the Pensions Regulator to prove intent is not in our view a convincing one. There is a plethora of jurisprudence on the test of intent as it has been successfully used by the criminal courts for hundreds of years. The proposal also to remove the defence of acting in good faith as an “unnecessary hurdle” cannot be justified; it is a long-standing legal principle that should not be discarded lightly.

In our view any changes to the anti-avoidance powers, which the Government admitted on their introduction are draconian, should be introduced via primary legislation in order that they can be properly debated and amended by Parliament. It is not satisfactory that restrictions of the wide-ranging changes should be by way of guidance.

These changes are far-reaching and a disproportionate response to a threat that has yet to be specified. They impinge upon a wide range of economic activity in the U.K. and beyond, raise fundamental questions of human rights and the corporate limited liability model that has been at the heart of the U.K.‘s economic success for two centuries and place arbitrary powers in the hands of an unaccountable regulator without proper Parliamentary scrutiny.

The result of this will not in our view lead to safer pensions but instead to less investment in corporate sponsors of defined benefit pension schemes and their subsequent decline and inevitable fall, on the PPF.

Conclusion
There are clear risks to members of defined benefit pension schemes from the employer covenant. The Government, rather than legislating for risks it admits have not yet occurred, should instead legislate to ensure that members are properly protected by professional trustees who understand investment and risk management and who put in place real-time decision making. The Government should welcome professional sponsors for the knowledge and understanding that they can bring to pension schemes and rather than risk stifling innovation, work with us to develop new ways of protecting pension scheme members.

Yours faithfully,

Malcolm Thomson
Partner

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Pension Corporation, a leading provider of pension solutions, today announces that Pension Insurance Corporation (PIC) has been selected to secure specified benefits of the Delta Pension Plan, which is sponsored by Delta plc. Pension Insurance Corporation is fully authorised and regulated by the Financial Services Authority.

In exchange for PIC insuring specified benefits of the Delta Pension Plan, Pension Insurance Corporation will receive assets amounting to £451 million.

The transaction brings assets managed by Pension Insurance Corporation in the defined benefit pension fund buy-out market to more than £500 million. Including sponsored pension funds, Pension Corporation now has more than £4.75 billion of pension assets under its umbrella.

Edmund Truell, Chief Executive of Pension Corporation, commented:

“This announcement with the Delta Pension Plan highlights Pension Corporation’s commitment to providing secure and responsible pension management to defined benefit funds and being the insurance solution of choice for pension fund members. The further development of our insurance buy-out business is another important step in being able to offer a complete range of specialist pension solutions to defined benefit funds of any size or financial strength.”

Todd Atkinson, Chief Executive of Delta plc, commented:

“We are delighted to reach agreement on a transaction with Pension Insurance Corporation that provides a cost effective solution for the benefit of plan participants and Delta plc.”

David Pearce, Chairman of the Trustee, Delta Pension Plan, commented:

“We are very pleased that we have been able to provide additional security for all members of the Delta Pension Plan through additional financial support from Delta plc and an insurance transaction with Pension Insurance Corporation.”

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

Delta Pension Plan Smithfield (on behalf of trustees)
John Antcliffe
+44 (0)20 7360 4900

Lucinda Kemeny
+44 (0)20 7260 4900
+44 (0)7958 924 188

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against the volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully FSA-authorised and regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot afford a pension insurance buy-out immediately, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies, including The Royal Bank of Scotland, HBOS and Swiss Re. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, and Bob Scott, former Group Chief Executive of Aviva. Pension Corporation has a total of £4.75 billion of pension assets under its stewardship.

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Pension Corporation, a leading provider of pension solutions, today announces that Pension Insurance Corporation has been selected to secure the pension benefits of members of Swan Hill Pension Scheme, sponsored by Raven Mount Plc. The agreement marks Pension Insurance Corporation’s entry into the defined benefit fund buy-out market. Pension Insurance Corporation is regulated by the Financial Services Authority.

Under the transaction, Swan Hill Pension Scheme’s assets and liabilities will be transferred to Pension Insurance Corporation in a transaction totalling £72 million. Scheme assets of £65 million are being topped up with an immediate £2 million contribution from Raven Mount Plc and a further £5 million contribution on a one-year deferred basis.

Sir Mark Weinberg, Chairman of Pension Corporation, commented:

“As Chairman of the Board of Pension Corporation, I am delighted that Raven Mount has chosen Pension Insurance Corporation to secure the pension benefits of members of the Swan Hill pension fund. We have already worked successfully with Raven Mount and the Swan Hill trustees to identify a solution that best meets their needs and we look forward to building on this collaboration to ensure a seamless transfer and smooth administration for the Swan Hill fund’s members.”

Edmund Truell, Chief Executive of Pension Corporation, said:

“Pension Corporation, backed by major financial institutions with nearly £1 billion of capital committed by shareholders, is dedicated to providing responsible pension management to defined benefit pension funds. We are proud to be entrusted with protecting the pension benefits of Swan Hill Pension Scheme, whose members can now rest assured that their pension savings and retirement incomes will be secure in the hands of Pension Insurance Corporation”.

Mark Kirkland, Group Finance Director of Raven Group plc, commented:

“I am delighted that the Trustees have chosen to secure our pension commitments with Pension Insurance Corporation. Throughout the process Pension Insurance Corporation has provided creative solutions to allow the company to transfer the risk at the earliest opportunity and give maximum certainty on its contribution. Pension Insurance Corporation has been flexible in working with us to structure the transfer in a way that optimises benefits for the company and members.”

James Hyslop, Chairman of Swan Hill Pension Scheme Trustees, said:

“The Trustees are very pleased to be able to announce that we have secured our members’ benefits with Pension Insurance Corporation. Along with the security provided by an FSA-authorised insurance company, Pension Insurance Corporation has demonstrated a real focus on looking after our members through its prudent and cautious approach to managing pension scheme assets and liabilities.”

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

Notes to Editors

The Pension Corporation group provides the following solutions to defined benefit pension funds:

• Insurance Buy-out
• Longevity Insurance
• Pension Fund Sponsorship
• Asset Liability Management

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, and enable their employers/sponsors to protect themselves against volatility of their earnings and balance sheet values.

Insurance Buy-out: An insurance policy is issued by Pension Insurance Corporation (“PIC”), which gives the members of the pension fund the security of having their benefits underwritten by a fully authorized and FSA-regulated insurance company and removing the responsibility for the pension fund payments from the balance sheet of the employer/sponsor. PIC can undertake the insurance in respect of all or some classes of the members, according to what the fund can afford, and is able to act quickly and in a flexible way (for example by offering different ways of financing the transaction).

Longevity Insurance: PIC offers a longevity insurance policy, the first of its kind in the world, to protect pension funds and their employer/sponsor against the cost of pensioners living longer than expected. The policy is tailored to the member-by-member profile of the fund so as to provide comprehensive “whole of life” protection against what is perhaps the most significant risk faced by pension funds and their employers/sponsors. Inflation risk can be included or covered separately by an inflation swap.

Pension Fund Sponsorship: Typically used where a fund cannot immediately afford a pension insurance buy-out, Pension Fund Sponsorship involves the Pension Corporation group becoming the owner of the employer/sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group, while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn once the pension fund members’ benefits have been secured, in much the same manner as funds within an insurance company. For each of the three pension schemes where Pension Corporation has acquired the employer/sponsor, it has advocated a reduction in the risk level of the pension fund assets, which shows the conservatism of Pension Corporation’s views on investment management and its emphasis on pensioner security.

Asset Liability Management: Pension Corporation has a highly experienced investment management team, which is able to advise on state-of-the-art asset and liability management. It offers this service on a fee basis or, in the case of funds under the sponsorship of companies owned by it, without charge.

Security

Pension Corporation is backed by large blue chip financial services companies, including The Royal Bank of Scotland, HBOS and Swiss Re. Its Board and management include a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re, Sir Martin Jacomb, former Chairman of the Prudential Assurance Group, and Bob Scott, former Group Chief Executive of Aviva. Its shareholders have committed nearly £1 billion of equity, giving it the capacity to take on up to £25 billion of liabilities. The total of pension funds sponsored to date by companies under the Pension Corporation umbrella amounts to £4.3 billion.

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Pension Corporation, a leading provider of pension solutions, today announces the launch of a new insurance product to protect defined benefit pension funds and their sponsors against the cost of pensioners living longer than expected. The comprehensive cover is offered by Pension Insurance Corporation, a fully authorised insurance company regulated by the FSA, and is the first of its kind to be provided to pension funds anywhere in the world. Pension Insurance Corporation is a wholly owned subsidiary of the Pension Corporation group.

Pension Insurance Corporation’s longevity insurance policy will reimburse pension funds for the cost of any future pension payments that arise from pensioners living longer than expected. In return for this protection pension funds will pay fixed annual premiums set at the inception of the policy. The comprehensive policy will remain in force until the death of a pension fund’s last covered pensioner or their dependant, such as a spouse.

Pension Corporation developed the longevity insurance product in recognition of the fact that life expectancy, or longevity, is increasing in the UK. Sixty-five-year-old British men can today expect to live 4.5 years and women 3.2 years longer than they did in 1980. This trend is accelerating and currently male life expectancy is increasing by one year every five years. The rate of improvement in male longevity continues to increase faster than for women.

It is estimated that an improvement in life expectancy by one year increases the liabilities of the average fund by more than 3.5%. Improving longevity means pensioners draw their benefits for longer and this increases pension fund liabilities.

The longevity insurance product differs from other products in the market because:

• It is an insurance policy from a fully FSA-regulated insurance company; it is not a derivative instrument
• The policy covers the specific longevity risk of the pension fund, rather than the longevity risk of the population at large, as in an index product
• The policy covers the pension fund for “whole of life,” until the death of a pension fund’s last covered pensioner or their dependant; as compared to products that provide cover for only ten years
• The policy requires no upfront payment, so 100% of the pension fund’s assets remain fully invested and earning returns for the fund

The policy should appeal to large pension funds that have no plans for buyout or those that plan to buyout in the future and want to retain 100% of their assets in the pension fund. Longevity insurance will benefit these funds by:

• Eliminating the most significant long-term risk, that of pensioners living longer
• Mitigating the cost of more conservative longevity assumptions that may be required in the future
• Facilitating a future insurance buy-out where the payments to pensioners are certain

Sir Mark Weinberg, Chairman of Pension Corporation, commented:

“Pension Corporation is in business to create solutions for pension funds that protect members’ benefits by mitigating the significant risks they bear. We are pleased to offer an insurance product from Pension Insurance Corporation that comprehensively covers the specific risk of longevity. Pension Insurance Corporation has the capacity and expertise to insure longevity risk now. Our approach will be to work closely with a pension fund, its trustees and advisers to tailor solutions that are appropriate to a fund’s longevity profile and presented in a clear policy.”

John Fitzpatrick, Partner of Pension Corporation and Director of Pension Insurance Corporation, said:

“Comprehensive longevity insurance will protect pension funds against the risk of their pensioners living longer, providing cover for the lifetime of pensioners and their dependants. We are confident our team’s extensive experience of developing insurance risk transfer products backed by a fully regulated insurance company will prove compelling to those pension funds and corporate sponsors. We look forward to working with trustees, advisers and sponsors on this truly ground-breaking protection to the pension industry.”

Enquiries

Pension Corporation
John Fitzpatrick
+44 (0)20 7105 2060

Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

Caroline Parker
+44 (0)20 7269 7295

Notes to Editors

The Pension Corporation group (“Pension Corporation” or “the Group”) provides the following solutions to defined benefit occupational pension schemes:

• Insurance Buy-out;
• Pension Fund Sponsorship;
• Asset Liability Management;
• Longevity Risk Transfer.

These solutions enable pension funds to protect their members’ benefits by strengthening and stabilising their financial position, reducing their exposure to unrewarded volatility and making future cash flows more predictable.

Pension Corporation is built around the fully authorized and FSA-regulated insurance company Pension Insurance Corporation (“PIC”) which offers longevity risk insurance as well as traditional pension insurance buy-out solutions. Pension Corporation Investments (“PCI”) offers Pension Fund Sponsorship by assuming responsibility for a pension fund’s corporate covenant, typically used where schemes cannot immediately afford insurance buy-out. Pension Corporation also provides Asset Liability Management solutions.

Pensioner security stems from Pension Corporation’s near £1 billion of equity committed by its shareholders. Pension Corporation is backed by large blue chip financial services companies, including The Royal Bank of Scotland, HBOS and Swiss Re, and is managed by a number of expert and highly experienced insurance industry executives, including Sir Mark Weinberg, co-founder of St James’s Place Wealth Management Group, John Coomber, former Chief Executive of Swiss Re and Sir Martin Jacomb, former chairman of the Prudential Assurance Group. It has the capacity to take on up to £25 billion of liabilities.

Many pension fund trustees believe the ultimate objective of any defined benefit occupational pension fund should be to secure the protection of insurance buy-out, where the corporate covenant is replaced by the insurance of an FSA-regulated provider and the Group is able to offer this through Pension Insurance Corporation. Pension Corporation can underwrite these solutions in a fast, flexible and effective manner.

Pension Insurance Corporation can alternatively underwrite pension risk transfers, including the pressing issue of longevity risk. Our comprehensive longevity policy is the first such insurance to be offered anywhere in the world.

Under pension Fund Sponsorship, Pension Corporate Investments becomes the owner of the sponsor of the pension fund. In this way, the fund gains the additional backing of the Pension Corporation Group while continuing to have the backing of the original sponsor and of the assets of the fund itself. Under this model financial returns to Pension Corporation can only be drawn down once pension scheme members’ benefits have been secured, in much the same manner as funds within an insurance company.

For each of the three pension schemes where Pension Corporation has acquired the corporate sponsor, Pension Corporation has advocated a reduction in the risk level of the pension fund assets. This emphasises Pension Corporation’s conservatism in regard to risk and the prioritisation of pensioner security.

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While most people hope to have retired by the time they become septuagenarians, Sir Mark Weinberg needs to keep working in order to stay active and alert.

Work is “seriously important”, he says. “I know quite a few people with a busy life. They then retire and go downhill. I keep fresh by getting involved in new ventures.”

The 76-year-old president of wealth management group St James’s Place certainly doesn’t need the money. Having co-founded three major life assurance companies, he is reportedly worth around £40m – a figure he is keen to emphasise is just “an estimate”.

Sir Mark, who is married to the ex-actress turned hotelier and fashion designer, Anouska Hempel, is also kept busy as chairman of specialist pensions buyout group Pension Corporation.

This, his latest project, has a heavyweight board, with Edmund Truell of Duke Street Capital fame as chief executive, and John Coomber, formerly boss of the world’s largest reinsurer, Swiss Re, as deputy executive chairman. Royal Bank of Scotland, Swiss Re and HBOS are investors in the company.

However, it has received bad publicity following last year’s £398m acquisition of Telent, the rump of the collapsed telecoms giant Marconi which came with a £2.5bn pension fund and 62,000 members.

The Determinations Panel of the Pensions Regulator alleged that Sir Mark’s company contemplated plotting to siphon off £30m from the escrow account set up for the scheme to reduce pension risks. Pension Corporation rejected the accusations, saying Telent’s accountant had prepared the option for the Telent management before the takeover. The row saw the regulator impose three independent pension trustees on the board.

In his first interview since Pension Corporation was set up two years ago, the life  assurance tycoon is now itching to “set the record straight”. “This was a takeover, but for better or worse – to avoid leaks – we chose not to consult the Pensions Regulator in advance and the trustees got spooked by this fact,” recalls Sir Mark. “They rushed off to the regulator. With hindsight, Takeover Code or not, we would have done better to talk to the regulator and probably done better to talk to the trustees as well.”

Sir Mark admits that the pension fund was the key attraction of Telent, but emphasises Pension Corporation had only hoped to access some of the £490m escrow account if it had delivered sound investment management advice over a 10- to 15-year period. He implies that the lessons have now been learnt, saying the “protracted spat” surrounding Telent “was amicably resolved” with the original pension trustee board reinstated.

To justify Pension Corporation’s actions, he says it has done well with a number of its other assets, particularly with its acquisition of Thresher. It advised the off-licence chain to sell shares in its pension scheme last June – just before equity markets crashed.

“Thresher was one of our good achievements,” he says. “On our advice, trustees derisked the scheme.” The Telent saga, however, has been used repeatedly by the media as an example of why the Government plans to increase the Pensions Regulator’s powers to make sure buyout companies are kept in check.

Remarking on the media and union comment surrounding the Telent deal, Sir Mark says: “Some of it has been fairer than others. Some of it has been based on significant misunderstanding.” The South African adds: “We have had two meetings with Pensions Regulator Mike O’Brien at his invitation and he has said to us that this change in regulation is not aimed at Pension Corporation.”

The increased powers of the regulator come at a time when specialist insurance companies are competing fiercely to take over pension funds from their sponsoring companies, with Goldman Sachs, Legal & General and Paternoster emerging as key figures. Pension Corporation has notably steered clear of taking on just the pension schemes, instead focusing on buying companies for their funds – a strategy it didn’t initially embark on.

Sir Mark admits Pension Corporation has deviated from its original plan but is insistent it will return to this model. “Our intention was to enter into this buyout market. Two things then happened: 10-12 other companies had the same idea at the same time and it is clear a small number of pension schemes are funded to buy out their own schemes.

“We did not want to get involved in uneconomical deals. In the short term, there is a lot of negative froth in the market. So this is an opportunity to concentrate on the companies where buyouts are not the only solution.”

Sir Mark is used to things not going according to plan. His Latvian-born father, who died when he was two, had been a life insurance agent but Sir Mark set out to be a barrister and studied for a law degree in South Africa.

He recalls “oscillating a bit” between London and South Africa in the 1960s, during the dark time of the Sharpeville massacre when “a lot of my friends left in a phalanx”. In the UK, he received his Master of Laws at the London School of Economics but found he had no connections. “I could not face starting legal practice here with no contacts.”

It was Donald Gordon, the South African property and life assurance magnate behind Liberty Life, who set him on his new career. “He needed to have the legal rules on personal pensions settled by someone. I went back to him with illustration forms and said ‘It complies with regulation but I do not think you will sell any policies as it is complicated and people will not understand  it’. So I went away to redesign the forms and the company then adopted them.”

Mr Gordon provided 25pc of the £50,000 seed capital for Abbey Life, the company Sir Mark founded in 1961. The company pioneered unitlinked policies and by the time it was snapped up by US conglomerate ITT in 1970, it was valued at £15m.

Sir Mark then went on to create a new life company for Hambros Bank, which was floated on the stock market and then took over unit trust group Allied and private bank Dunbar. The group was renamed Allied Dunbar and the business, known for its pushy advertising and hardselling, was sold for £664m to British American Tobacco in 1986.

Despite being given a seat on the BAT board, Sir Mark describes this as a “less satisfying” time in his career. “I was the only non-smoker on the board,” he recalls, before talking about how he stood down after Rothschild launched a £13bn takeover bid for BAT in 1989. Sir Mark had by then joined the board of J Rothschild Holdings. “In each case, things changed for a reason.”

Sir Mark then co-founded the St James’s Place Group, which now has more than 400,000 clients and £17.2bn funds under management. His other roles have included being deputy chairman of the principal UK regulatory body, the Securities and Investment Board and a former treasurer of the National Society for the Prevention of Cruelty to Children.

The past couple of years at Pension Corporation has been full of ups and downs, but Sir Mark feels things are now on track, with the company back at “square one”. The tall and sun-tanned man has slowed down in recent years, with the “occasional” bridge session replacing tennis and horse riding, but he still sails – despite a yacht accident six months ago in which he broke a number of ribs.

There is one thing, however, that will never change. “I will never retire voluntarily,” he vows. “Anywhere.”

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Pension Corporation is delighted to have supported Quadriga in securing additional and ongoing investment allowing it to deliver substantial financial and operational growth. Group revenue, EBITDA and cash flow targets have been exceeded and Quadriga now provides services to approx 410k hotel rooms in over 50 countries.

Quadriga is the European market leader in the provision of integrated broadband, internet and entertainment services for business and leisure guests staying in hotels

Pension Corporation Investments and other co-investors acquired Quadriga in August 2007. Quadriga was acquired by Pension Corporation from Terra Firma Partners as part of the larger acquisition of Thorn which included Pension Corporation becoming the ultimate sponsor to Thorn’s £1.1 billion pension scheme.

Pension Corporation is committed to providing leading corporate oversight and management capabilities to the companies in which it invests to ensure the continuing growth of the business to become market leaders, whilst also ensuring the safe and secure corporate sponsorship of their pension schemes.

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Caroline Parker
+44 (0)20 7269 7295

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

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Sir,

In response to the Lombard leader on Wednesday 16th April, I ask the question: what poses greater generic risk to UK pensioners' security – the takeover of small employers with large, well funded pension schemes by a highly resourced and dedicated pension specialist; or persisting with a system which has presided over £140 billion deterioration in pension funding in the last nine months?

Let's focus on the real pension issues in this country. Excessive risk exposure; underfunding of the public sector pension promises; and non-participation by most people under 35.

Neither taxpayers nor the economy will benefit from the forced transfer of money from unconnected shareholders to underfunded pension plans that is implicit in the proposed new regulatory architecture. However, recent Government moves are good for Pension Corporation's business in so far as they once again underscore the liability faced by corporate sponsors, something that is widely unrecognized by shareholders.

Yours faithfully,

Edmund Truell

P.S. We do have an FSA authorised life insurer in the Pension Corporation group.

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G.E.C. 1972 Pension Scheme Trustee Board

Pension Corporation is delighted with the announcement by The Pensions Regulator (“TPR”) on 11th April, 2008 that the powers to govern the G.E.C. 1972 pension scheme will revert to the telent trustee board (the former operating trustee body of the G.E.C. 1972 pension scheme) from 18th April, 2008.

Pension Corporation has fought to ensure a balanced model of governance for the future of the pension scheme comprising three Company nominated trustees, three Member nominated trustees and three Independent trustees.

Pension Corporation welcomes the restitution of a 3/3/3 split trustee board and the appointment of two new independent trustees.

Determinations Panel Hearing and its Reasons

Some of the former trustees of the telent trustee board put forward very serious arguments against Pension Corporation to the Determinations Panel (“DP”), claiming that there was an “immediate threat” to the assets of the scheme if Pension Corporation succeeded in its offer for telent.

This resulted in the appointment of three trustees by the Determinations Panel of TPR.

A number of those arguments were misleading and factually incorrect:

1. The necessity “to extract value from the Escrow to make the Offer economically worthwhile” – no firm evidence was put forward to support this argument. Pension Corporation will not, and as a matter of fact could not, “raid the Escrow”.
   • However, prior to the acquisition of the company by Pension Corporation, telent had quite appropriately reviewed with KPMG the feasibility of an enhanced transfer value exercise which would legitimately require the use of £30m of Escrow funds to effect. Pension Corporation had noted this in its due diligence: that fact should never have been used to argue that Pension Corporation was planning some form of ‘raid’ of the Escrow.
2. Adopting “a higher risk investment strategy” – Pension Corporation actually advocates a “risk reduction” programme as part of its business model, as exemplified by its continuing work with the trustees of the telent, Thorn and Thresher pension schemes.
   • Pension Corporation was very disappointed that the DP’s Reasons “preferred the view of Mr Mitchell of Watson Wyatt” on the basis of Mr Mitchell’s assumptions even although he had not had access to the financial analysis of Pension Corporation.
   • Pension Corporation has had various meetings with the DP appointed trustees advocating further risk reduction of the GEC 1972 plan and has expressed its concerns at the remaining level of risk in the plan.
3. The telent bid structure was “likely to leave telent servicing a very substantial debt burden” and thereby weakening the telent covenant.
   • No leveraging of the telent operating assets was used in the telent acquisition, as clearly set out in the Offer Document dated 2nd October, 2007, and no real evidence was submitted to the DP to support this argument. Again, this argument against Pension Corporation was factually incorrect.

The undertaking and other arrangements put in place between Pension Corporation and TPR mean that it is now not necessary for Pension Corporation to continue with its appeal against the Reasons of the DP at this time, but its right to do so in other contexts in the future has been reserved.

Conflicts of Interest

Pension Corporation has noted the concerns of TPR regarding the management of conflicts of interest and has agreed steps to allay those concerns and to avoid and improve the management of such conflicts. Pension Corporation can confirm that it has undertaken to TPR that it will not appoint anyone from Pension Corporation or associated entities as trustees to the telent trustee board, and other trustee boards of sponsor companies it controls for the foreseeable future.

Pension Corporation has shared its model conflicts protocol with TPR and hopes that TPR’s subsequent consultation document (dated February 2008 in relation to conflicts of interest) will result in clear and workable operating procedures being implemented for all UK trustee boards in the near future.

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

Notes to Editors

The Pension Corporation Business Model

Pension Corporation provides the following services to pension schemes:

• Corporate Sponsorship;
• Insurance; and/or
• Asset Liability Management

In this way, Pension Corporation helps to strengthen pension schemes and stabilise their financial position.

Pension Corporation believes that the Corporate Sponsorship model which utilises the covenant of the business plus the assets of the pension plan (managed on an insurance industry based model), can be a more capital efficient way of securing member’s benefits without increasing risk to the plan.

In Corporate Sponsorship transactions such as the telent acquisition, financial returns to Pension Corporation will be drawn down after pension scheme member benefits are secured, over the long-run, in much the same manner as an insurance company.

Although the two pension schemes where Pension Corporation has become corporate sponsor were responsibly managed under previous ownership, Pension Corporation has advocated a reduction in the risk level of the pension scheme assets. This emphasises Pension Corporation’s conservatism in regard to risk and prioritisation of pensioner security.

Pension Corporation has also been active in developing the telent business, in particular by making available its business skills to assist in the recent acquisition of TSEU Group and is ready to support further business expansion.

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Pension Corporation has noted the issues being raised by the Department for Work and Pensions in relation to Corporate Sponsorship transactions, such as the telent plc acquisition, and the potential implications for members” security.

Pension Corporation representatives have met with Mike O’Brien, Minister for Pensions Reform (Monday 14th April, 2008) and appreciate being given the opportunity to assist in identifying issues as part of the consultation process regarding the proposed changes to TPR’s powers.

Pension Corporation shares the Minister’s concerns that members’ interests need to be appropriately protected in this area and that the potentially irresponsible actions of a few should be capable of being effectively controlled, without damaging the positive development of the pensions industry in the UK.

Very few pension schemes in the UK operate to the high level of funding, security, and governance of those pension schemes under the stewardship of Pension Corporation and we welcome action by Government to protect vulnerable schemes.

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

Notes to Editors

The Pension Corporation Business Model

Pension Corporation provides the following services to pension schemes:

• Corporate Sponsorship;
• Insurance; and/or
• Asset Liability Management

In this way, Pension Corporation helps to strengthen pension schemes and stabilise their financial position.

Pension Corporation believes that the Corporate Sponsorship model which utilises the covenant of the business plus the assets of the pension plan (managed on an insurance industry based model), can be a more capital efficient way of securing member’s benefits without increasing risk to the plan.

In Corporate Sponsorship transactions such as the telent plc acquisition, financial returns to Pension Corporation will be drawn down after pension scheme member benefits are secured, over the long-run, in much the same manner as an insurance company.

Although the two pension schemes where Pension Corporation has become corporate sponsor were responsibly managed under previous ownership, Pension Corporation has advocated a reduction in the risk level of the pension scheme assets. This emphasises Pension Corporation’s conservatism in regard to risk and prioritisation of pensioner security.

Pension Corporation has also been active in developing the telent business, in particular by making available its business skills to assist in the recent acquisition of TSEU Group and is ready to support further business expansion.

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Pension Corporation today issued the following statement in response to comments by Unite.

Pension Corporation does not raid pension schemes: it provides sponsorship, insurance or asset liability management services to pension schemes. In this way, it helps to strengthen pension schemes and stabilise their financial position. Its financial returns will be drawn down only over the long-run in the same manner as an insurance company and only after pension scheme member benefits are secured. Although the three pension schemes where Pension Corporation has become corporate sponsor were responsibly managed, it has advocated a reduction in the risk level of the pension scheme assets. This emphasises its conservatism in regard to risk and prioritisation of pensioner security. Pension Corporation has also been active in developing the telent business, in particular by making available its business skills to assist in the recent acquisition of TSEU Group and is ready to support further business expansion.

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

FD
Rob Bailhache
+44 (0)20 7269 7200

Nick Henderson
+44 (0)20 7269 7114

Christine Wood
+44 (0)20 7269 7253

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Pension Corporation, which acquired Threshers in June 2007, has assisted the pension fund trustees in enhancing the funding levels, relative to the FRS17 benchmark, despite the turbulence in global credit and equity markets over the last few months. This achievement is in marked contrast to the experience of other pension funds, many of whom have experienced sharp falls in funding levels, and reflects the success of the integrated asset-liability management approach utilised by Pension Corporation.

Financial markets have remained volatile over the last quarter, with confidence in the banking system at a low ebb. Northern Rock continues to dominate the headlines and more credit losses have been reported globally. What is now clear is that we are in a phase where the excess leverage built up in the financial system over the last few years is being unwound. What is less clear is how much further this has to run and whether this could lead to a recession. In this environment, pension funds holding equities and corporate bonds have seen further deterioration in their funding position.

Pension Corporation has made available state-of-the-art asset and liability management to the trustees, in order to outperform volatile markets and increase the funding levels of the Threshers fund. Investment risk within the portfolio was reduced by selling all of the fund’s equities, which had comprised 60% of investments. This also allowed the fund to avoid the current market downturn. The Pension Corporation team also helped the trustees ensure that the fund was not exposed to any subprime or sub-investment grade credit.

Interest rate and inflation risks were then hedged by the trustees by using long dated swaps on 7th August, which stabilised its funding level. So far, Pension Corporation has helped the trustees improve the net funding level of the Threshers pension fund and this is a record of which we are proud in current markets. The key element of the strategy is the reduction of volatility of the Fund’s liabilities. To that end, the swap portfolio – implemented to minimise the Fund's sensitivity to interest rate and inflation movements – has proved its worth as it has protected the portfolio and its surplus from the violent shifts in interest rate and inflation expectations over the past five months.

Since then investments have been made very cautiously by the trustees, reflecting the view that markets are likely to be in for a turbulent time. Credit exposure remains minimal and there is no direct long equity exposure in the Fund. Over 55% of the Fund is defensively invested today in money market instruments and with the benefit of Pension Corporation’s market access, the trustees have started to build a very diverse portfolio using absolute return seeking assets. The trustees are considering proposals to extend this approach towards building a portfolio that no longer depends on the market direction for investment returns, and is constructed to minimise risk in a wide variety of market environments, including the turbulent time we are now in.

By hedging out the unrewarded risks of interest rates and inflation and taking a cautious investment approach, Threshers pension fund has shown it is possible even in extremely difficult markets to stabilise pension scheme funding levels.

To ensure best practice corporate governance, Pension Corporation has also supported the appointment of an additional and highly experienced professional trustee – Independent Trustee Services Limited – to the Trustee Board of the Threshers pension fund. The trustees have also been provided with free and unfettered access to the collective investment expertise of the personnel within Pension Corporation.

Edmund Truell, CEO of Pension Corporation said:

“We are absolutely delighted with the continued successful performance of the Threshers pension fund amid volatile markets. We are pleased to have been able to offer support as well as a wealth of excellent asset and liability management expertise to the Trustee Board over the last 9 months. This has helped to preserve both the funding levels and the security of members' benefits. We look forward to continuing to work with the trustees of the fund over the coming months and years”.

Enquiries

Pension Corporation
Petra Peliskova
+44 (0)20 7105 2142

Notes to Editors

• Immediately prior to acquisition (31st May 2007), the Threshers pension fund had assets of £63.1 million
• Pension Corporation believes assets and liabilities must be run together as the key metrics for pension funds are prudence and solvency margin. The keys to running any portfolio successfully are simple:
  • reduce assets slower than liabilities over time;
  • avoid catastrophic losses though the taking of unintended risks;
  • remove all of these unwanted risks wherever possible.
• It is our belief that using the latest portfolio construction techniques and knowledge of asset classes at our disposal, we can help trustees hedge out or counterbalance the inherent risks within their portfolio (both market risks and hidden risks), while still generating returns in excess of Libor to close deficits and match those liabilities which are difficult to hedge, in particular, longevity.

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NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

Recommended Cash Offer for telent plc (“telent”) by Co-Investment No. 5 L.P. Incorporated (“CILP”) a limited partnership whose general partner is advised by Pension Corporation LLP (“Pension Corporation”)

Offer declared wholly unconditional

Further to CILP’s announcement of 9 November 2007, CILP continues to hold discussions with the Pensions Regulator and other interested parties in relation to the circumstances which impact on the condition in paragraph (k) of Part A of Appendix I to the Offer Document. As a result of the ongoing discussions, and the Pensions Regulator's most recent communication with CILP in relation to these matters, in the present circumstances there is a realistic prospect of a resolution of the issues relating to the actions of the Pensions Regulator in exercising its statutory powers to appoint three trustees of telent’s UK pension scheme in a manner satisfactory to CILP and, accordingly, CILP announces that the Offer is now declared unconditional in all respects. The Offer will remain open until further notice and telent Shareholders who have yet to accept the Offer are urged to do so as soon as possible.

As at 3.45 pm on 15 November 2007, CILP had received valid acceptances in respect of a total of 40,586,442 telent Shares, representing approximately 91.90 per cent. of telent's issued share capital to which the Offer relates. CILP has become entitled to acquire compulsorily the remaining telent Shares pursuant to the Companies Act 2006 and it intends to exercise that right shortly.

This total includes acceptance of the Offer received in respect of 846 telent Shares which were subject to irrevocable undertakings procured by CILP from the Board of telent.

As at 14 November 2007, CILP and Merrill Lynch (which is deemed to be acting in concert with CILP (within the meaning of the City Code)) held such number of telent Shares as set out below:

Holder	Number of telent Shares	% of total issued share capital
CILP	18,369,372	29.38
Merrill Lynch	734	0.00

As at 14 November 2007, CILP had received no valid acceptance of the Offer with respect to the telent Shares held by Merrill Lynch.

Save as disclosed in this announcement, neither CILP, nor any person acting in concert with CILP, had any other interest in or had any rights to subscribe for any relevant securities of telent nor had any short position or any arrangement in relation to any relevant securities of telent. For these purposes, "arrangement" includes any agreement to sell or any delivery obligation or option arrangement or right to require another person to purchase or take delivery of any relevant securities of telent and any borrowing or lending of any relevant securities of telent which have not been on-lent or sold and any outstanding irrevocable undertaking with respect to any relevant securities of telent.

Settlement of consideration due under the Offer in respect of valid acceptances received on or before today’s date will be despatched by first class post (in the case of certificated holders) or credited to the relevant CREST account (in the case of non-certificated holders) on or before 29 November 2007. Settlement in respect of further valid acceptances will be despatched within 14 days of receipt of such acceptances.

Terms defined in the Offer Document have the same meaning in this announcement.

Enquiries:

Pension Corporation
Petra Peliskova
Telephone: +44 (0)20 7105 2142

Merrill Lynch
Philip Noblet
Noah Bulkin
Michael Findlay (Corporate Broking)
Telephone: +44 (0)20 7628 1000

Equus Group
Piers Hooper
James Sumpster
Telephone: +44 (0)20 7223 1100

This announcement is not intended to and does not constitute, or form part of, an offer to sell or invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the Offer or otherwise, nor will there be any purchase or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law or regulation. The Offer is being made solely through the Offer Document and, in the case of certificated telent Shares, the Form of Acceptance accompanying the Offer Document, which contains the full terms and conditions of the Offer, including details of how to accept the Offer. Any acceptance or other response to the Offer should be made only on the basis of the information in such documents.

Merrill Lynch, which is authorised and regulated in the UK by the Financial Services Authority, is acting exclusively for CILP and Pension Corporation and no one else in connection with the Offer and will not be responsible to anyone other than CILP and Pension Corporation for providing the protections afforded to customers of Merrill Lynch or for giving advice in relation to the Offer.

The availability of the Offer to persons who are not resident in the UK may be affected by the laws of the relevant jurisdictions. Persons who are not so resident should inform themselves about, and observe, any applicable requirements. Further details in relation to overseas shareholders will be contained in the Offer Document.

The release, publication or distribution of this announcement in jurisdictions other than the UK or the Offer Document may be restricted by law and/or regulation and therefore any persons who are subject to the laws and regulations of any jurisdiction other than the UK should inform themselves about, and observe, any applicable requirements. Any failure to comply with the applicable requirements may constitute a violation of the laws and/or regulations of any such jurisdiction. This announcement and the Offer Document have been prepared for the purpose of complying with English law and the City Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and/or regulations of jurisdictions outside the UK.

Any person (including, without limitation, any custodian, nominee and trustee) who would, or otherwise intends to, or who may have a contractual or legal obligation to, forward this announcement and/or the Offer Document and/or any other related document to any jurisdiction outside the UK should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdiction.

Notice to US investors

This announcement does not constitute, or form part of, any offer for, or any solicitation of any offer for securities, nor is it a solicitation of any vote or approval in any jurisdiction, nor will there by any purchase or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law or regulation.

The Offer is being made for securities of a UK company and United States investors should be aware that this announcement, the Offer Document and any other documents relating to the Offer have been or will be prepared in accordance with the City Code and UK disclosure requirements, format and style, all of which differ from those in the United States. telent’s financial statements, and all financial information that is included in this announcement or that may be included in the Offer Document or any other documents relating to the Offer, have been or will be prepared in accordance with United Kingdom generally accepted accounting principles and International Financial Reporting Standards and thus may not be comparable to financial statements of United States companies or companies whose financial statements are prepared in accordance with US generally accepted accounting principles.

The Offer is being made in the United States in accordance with any obligations CILP may have under applicable securities laws (including any obligations under Rule 14e-1(d)) and otherwise in accordance with the requirements of the City Code. Accordingly, the Offer is being made subject to disclosure and other procedural requirements, including with respect to withdrawal rights, offer timetable, settlement procedures and timing of payments that are different from those applicable under US domestic tender offer procedures and law.

The receipt of cash pursuant to the Offer by a United States holder of telent Shares may be a taxable transaction for United States federal income tax purposes and under applicable US state and local, as well as non-US and other tax laws. Each holder of telent Shares is urged to consult his independent professional adviser immediately regarding the tax consequences of acceptance of the Offer.

telent is incorporated under the laws of England and Wales. No telent Director is a resident of the United States. In addition, telent’s articles of association contain provisions to the effect that all proceedings between a telent Shareholder (in its capacity as such) and telent or any of its Directors or professional service providers may only be brought in the courts of England and Wales. As a result, it may not be possible for United States shareholders of telent to effect service of process within the United States upon telent or such telent Directors or to enforce against any of them judgements of the United States predicated upon the civil liability provisions of the federal securities laws of the United States. It may not be possible to sue telent or its officers or directors in a non-US court for violations of the US securities laws.

To the extent permitted by applicable law, in accordance with the City Code and normal UK market practice and pursuant to class exemptive relief granted by the Staff of the Division of Market Regulation of the US Securities and Exchange Commission from Rule 14e-5 of the US Exchange Act, CILP or its nominees or brokers (acting as agents) may from time to time during the period in which the Offer remains open for acceptance make certain purchases of, or arrangements to purchase, telent Shares otherwise than under the Offer, such as in open market or privately negotiated purchases. In accordance with the requirements of Rule 14e-5 and exemptive relief granted by the SEC, such purchases, or arrangements to purchase, will comply with all applicable UK rules, including the City Code and the rules of the London Stock Exchange. In addition, in accordance with the City Code, normal UK market practice and Rule 14e-5(b) of the Exchange Act, Merrill Lynch will continue to act as exempt principal traders in telent securities on the London Stock Exchange. Information regarding such activities which is required to be made public in the United Kingdom pursuant to the City Code will be reported to a Regulatory Information Service and will be available on the London Stock Exchange website at www.londonstockexchange.com. This information will also be communicated in the United States in accordance with applicable US securities laws to the extent that such information is made public in the United Kingdom.

Forward-looking statements

This announcement may contain "forward-looking statements" concerning the Offer, CILP and telent. Generally, the words "will", "may", "should", "continue", "believes", "expects", "intends", "anticipates" or similar expressions identify forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond the companies' abilities to control or estimate precisely, such as future market conditions and the behaviours of other market participants, and therefore undue reliance should not be placed on such statements. CILP and telent assume no obligation and do not intend to update these forward-looking statements, except as required pursuant to applicable law and regulation.

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NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

Recommended Cash Offer for telent plc by Co-Investment No. 5 L.P. Incorporated (“CILP”) a limited partnership whose general partner is advised by Pension Corporation LLP (“Pension Corporation”)

On 25 September 2007, CILP announced a recommended cash offer for the entire issued and to be issued share capital of telent plc and on 2 October 2007, posted its Offer Document (the “Offer Document”) to telent Shareholders setting out the full terms and Conditions of the Offer.

CILP further announced on 24 October 2007 that in light of the exceptional circumstances arising as a consequence of the Pensions Regulator exercising its statutory powers to appoint three trustees of telent’s UK pension scheme (the “Pensions Regulator’s Action”), telent and CILP had agreed with the Panel Executive that, in relation to the first closing date of the Offer, which was 1.00 p.m. (London time) on 23 October 2007, the deadlines for making an appropriate announcement pursuant to paragraph 2(a) of Part B of Appendix I to the Offer Document and to announce any decision to extend the time and/or date by which the acceptance condition has to be fulfilled pursuant to paragraph 2(b) of Part B of Appendix I to the Offer Document would each be extended to 8.00 a.m. (London time) on 31 October 2007.

Level of acceptances

CILP announces that as at 1.00 p.m. (London time) on 23 October 2007, being the first closing date of the Offer, valid acceptances of the Offer had been received from telent Shareholders in respect of a total of 26,079,804 telent Shares, representing approximately 41.73 per cent. of the existing issued share capital of telent.

This total includes acceptance of the Offer received in respect of 846 telent Shares which were subject to irrevocable undertakings procured by CILP from the Board of telent.

As at 22 October 2007, CILP and Merrill Lynch (which is deemed to be acting in concert with CILP (within the meaning of the City Code)) held such number of telent Shares as set out below:

Holder	Number of telent Shares	% of total issued share capital
CILP	18,369,372	29.39
Merrill Lynch	734	0.00

As at 22 October 2007, CILP had received no valid acceptance of the Offer with respect to the telent Shares held by Merrill Lynch.

Save as disclosed in this announcement, neither CILP, nor any person acting in concert with CILP, had an interest in or had any rights to subscribe for any relevant securities of telent nor had any short position or any arrangement in relation to any relevant securities of telent. For these purposes, "arrangement" includes any agreement to sell or any delivery obligation or option arrangement or right to require another person to purchase or take delivery of any relevant securities of telent and any borrowing or lending of any relevant securities of telent which have not been on-lent or sold and any outstanding irrevocable undertaking with respect to any relevant securities of telent.

Extension of the Offer

CILP announces that the Offer, which remains subject to the terms and Conditions set out in the Offer Document, is being extended and will remain open until 1.00 p.m. (London time) on 7 November 2007. Any further extensions to the Offer will be publicly announced by 8.00 a.m. (London time) on the Business Day following the day on which the Offer is otherwise due to expire, or such later time or date as the Panel may agree. Purported acceptances of the Offer which have been received since 1.00 pm on 23 October 2007 will be treated as valid acceptances of the Offer provided that such acceptances are otherwise valid or are deemed to be valid in accordance with the terms of the Offer.

CILP and telent are in discussions with the Pensions Regulator and other interested parties regarding the Pensions Regulator’s Action and will seek to continue to have constructive dialogue with these parties. CILP and telent have agreed with the Panel Executive that the Pensions Regulator’s Action constitutes a breach of the condition in paragraph (k) of Part A of Appendix I to the Offer Document and that in the present circumstances, that breach may be invoked by CILP to lapse the Offer. If the Offer becomes or is declared unconditional as to acceptances and such circumstances continue to persist on the 21st day after the date on which the Offer becomes or is declared unconditional as to acceptances, CILP will invoke the condition in paragraph (k) of Part A of Appendix I to the Offer Document and allow the Offer to lapse.

Terms defined in the Offer Document have the same meaning in this announcement.

Enquiries:

Pension Corporation
Petra Peliskova
Telephone: +44 (0)20 7105 2142

Merrill Lynch
Philip Noblet
Noah Bulkin
Michael Findlay (Corporate Broking)
Telephone: +44 (0)20 7628 1000

Equus Group
Piers Hooper
James Sumpster
Telephone: +44 (0)20 7223 1100

telent plc
Monica Coull
Telephone: +44 (0)20 7005 6260

Lazard
Nicholas Jones
Peter Warner
Francois Barou
Telephone: +44 (0)20 7187 2000

JPMorgan Cazenove
Andrew Hodgkin
Telephone: +44 (0)20 7588 2828

Threadneedle Communications
John Coles
Telephone: +44 (0)20 7936 9604

This announcement is not intended to and does not constitute, or form part of, an offer to sell or invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the Offer or otherwise, nor will there be any purchase or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law or regulation. The Offer is being made solely through the Offer Document and, in the case of certificated telent Shares, the Form of Acceptance accompanying the Offer Document, which contains the full terms and conditions of the Offer, including details of how to accept the Offer. Any acceptance or other response to the Offer should be made only on the basis of the information in such documents.

Merrill Lynch, which is authorised and regulated in the UK by the Financial Services Authority, is acting exclusively for CILP and Pension Corporation and no one else in connection with the Offer and will not be responsible to anyone other than CILP and Pension Corporation for providing the protections afforded to customers of Merrill Lynch or for giving advice in relation to the Offer.

Lazard and JPMorgan Cazenove, which are authorised and regulated in the UK by the Financial Services Authority, are acting exclusively for telent and no one else in connection with the Offer and will not be responsible to anyone other than telent for providing the protections afforded to the respective customers of Lazard or JPMorgan Cazenove nor for giving advice in relation to the Offer.

The availability of the Offer to persons who are not resident in the UK may be affected by the laws of the relevant jurisdictions. Persons who are not so resident should inform themselves about, and observe, any applicable requirements. Further details in relation to overseas shareholders will be contained in the Offer Document.

The release, publication or distribution of this announcement in jurisdictions other than the UK or the Offer Document may be restricted by law and/or regulation and therefore any persons who are subject to the laws and regulations of any jurisdiction other than the UK should inform themselves about, and observe, any applicable requirements. Any failure to comply with the applicable requirements may constitute a violation of the laws and/or regulations of any such jurisdiction. This announcement and the Offer Document have been prepared for the purpose of complying with English law and the City Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and/or regulations of jurisdictions outside the UK.

Any person (including, without limitation, any custodian, nominee and trustee) who would, or otherwise intends to, or who may have a contractual or legal obligation to, forward this announcement and/or the Offer Document and/or any other related document to any jurisdiction outside the UK should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdiction.

Notice to US investors

This announcement does not constitute, or form part of, any offer for, or any solicitation of any offer for securities, nor is it a solicitation of any vote or approval in any jurisdiction, nor will there by any purchase or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law or regulation.

The Offer is being made for securities of a UK company and United States investors should be aware that this announcement, the Offer Document and any other documents relating to the Offer have been or will be prepared in accordance with the City Code and UK disclosure requirements, format and style, all of which differ from those in the United States. telent’s financial statements, and all financial information that is included in this announcement or that may be included in the Offer Document or any other documents relating to the Offer, have been or will be prepared in accordance with United Kingdom generally accepted accounting principles and International Financial Reporting Standards and thus may not be comparable to financial statements of United States companies or companies whose financial statements are prepared in accordance with US generally accepted accounting principles.

The Offer is being made in the United States in accordance with any obligations CILP may have under applicable securities laws (including any obligations under Rule 14e-1(d)) and otherwise in accordance with the requirements of the City Code. Accordingly, the Offer is being made subject to disclosure and other procedural requirements, including with respect to withdrawal rights, offer timetable, settlement procedures and timing of payments that are different from those applicable under US domestic tender offer procedures and law.

The receipt of cash pursuant to the Offer by a United States holder of telent Shares may be a taxable transaction for United States federal income tax purposes and under applicable US state and local, as well as non-US and other tax laws. Each holder of telent Shares is urged to consult his independent professional adviser immediately regarding the tax consequences of acceptance of the Offer.

telent is incorporated under the laws of England and Wales. No telent Director is a resident of the United States. In addition, telent’s articles of association contain provisions to the effect that all proceedings between a telent Shareholder (in its capacity as such) and telent or any of its Directors or professional service providers may only be brought in the courts of England and Wales. As a result, it may not be possible for United States shareholders of telent to effect service of process within the United States upon telent or such telent Directors or to enforce against any of them judgements of the United States predicated upon the civil liability provisions of the federal securities laws of the United States. It may not be possible to sue telent or its officers or directors in a non-US court for violations of the US securities laws.

To the extent permitted by applicable law, in accordance with the City Code and normal UK market practice and pursuant to class exemptive relief granted by the Staff of the Division of Market Regulation of the US Securities and Exchange Commission from Rule 14e-5 of the US Exchange Act, CILP or its nominees or brokers (acting as agents) may from time to time during the period in which the Offer remains open for acceptance make certain purchases of, or arrangements to purchase, telent Shares otherwise than under the Offer, such as in open market or privately negotiated purchases. In accordance with the requirements of Rule 14e-5 and exemptive relief granted by the SEC, such purchases, or arrangements to purchase, will comply with all applicable UK rules, including the City Code and the rules of the London Stock Exchange. In addition, in accordance with the City Code, normal UK market practice and Rule 14e-5(b) of the Exchange Act, Merrill Lynch will continue to act as exempt principal traders in telent securities on the London Stock Exchange. Information regarding such activities which is required to be made public in the United Kingdom pursuant to the City Code will be reported to a Regulatory Information Service and will be available on the London Stock Exchange website at www.londonstockexchange.com. This information will also be communicated in the United States in accordance with applicable US securities laws to the extent that such information is made public in the United Kingdom.

Forward-looking statements

This announcement may contain "forward-looking statements" concerning the Offer, CILP and telent. Generally, the words "will", "may", "should", "continue", "believes", "expects", "intends", "anticipates" or similar expressions identify forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond the companies' abilities to control or estimate precisely, such as future market conditions and the behaviours of other market participants, and therefore undue reliance should not be placed on such statements. CILP and telent assume no obligation and do not intend to update these forward-looking statements, except as required pursuant to applicable law and regulation.

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Entrepreneur Edmund Truell is close to buying the sponsorship of UK pension schemes worth £5bn (€7.1bn), putting him six months ahead of his target to control £10bn by 2009. He aims to grow the network to £25bn by 2011.

His Pension Corporation last week agreed a £400m bid for Telent, sponsor to the £3bn Marconi pension scheme. Recent deals at Thorn, a TV rentals specialist, and Threshers, an off-licence chain, would take the haul to £4.4bn.

Pension Corporation, formerly known as Pension Insurance Corporation, has snapped up 29.5% of Telent and hopes to snare the £750m pension scheme sponsored by Aga Foodservice, a cooker manufacturer, after lifting its stake to 16% last week. Truell is also understood to be interested in the £750m scheme sponsored by Rank, a leisure group.

Truell started Pension Corporation a year ago, with backers including Swiss Re, JC Flowers and Royal Bank of Scotland. It has won control of schemes by bidding for their sponsors. As soon as it takes control, the group puts sufficient cash into an escrow account on which they can draw to restore full solvency and widen their investment remit. About 80% of the funds are invested in bonds and the balance in a mixture of derivatives and alternative investments.

When the schemes are more than 105% funded, the regulators allow Pension Corporation to pull money out of its escrow accounts, which invest funds more aggressively than the schemes.

As a result Pension Corporation can collect a shorter-term return from its escrow account. Retrieving a surplus depends on the longevity of members and the attitude of trustees. Pension Corporation seeks to measure longevity as precisely as possible, taking out insurance to minimise risk.

Truell said that to make a decent return Pension Corporation had to sponsor a large number of schemes. He said the company contacted the Marconi trustees before it decided to bid for Telent: “We gave them a bit of advice and I’m pleased to say they implemented a fair amount of it.”

Despite his 29.5% stake, he said: “I don’t want to be arrogant about our chances of winning control.” He likes the look of Telent’s telecom equipment business and aims to keep it.

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Co-Investment No. 5 LP Incorporated (“CILP”) a limited partnership whose general partner is advised by Pension Corporation LLP (“Pension Corporation”) Recommended Cash Offer for telent plc (“telent”)

Summary

CILP and the Board of telent announce a recommended cash offer for telent of 600p per telent Share (the “Offer”).

The Offer values telent at approximately £398 million. The Offer represents a premium of approximately:

• 18 per cent. to the closing middle market price of 510p per telent Share on 24 September 2007 (the last business day prior
to this announcement); and

• 23 per cent. to the average closing middle market price of 487p per telent Share for the one month up to and including 24 September 2007 (being the last business day prior to this announcement).

Under the terms of the Offer, telent Shareholders on the register as at 21 September 2007 will retain the right to receive on 17 October 2007 the final dividend of 11p per telent Share for the year ended 31 March 2007 announced on 16 May 2007.

CILP has unconditionally agreed to acquire 16,500,000 telent Shares, representing (as at the date of this announcement) approximately 26.39 per cent. of the existing issued ordinary share capital of telent. Further, as at the close of business on 24 September 2007, being the last practicable business day prior to this announcement, CILP owned 1,869,372 telent Shares representing approximately 2.99 per cent. of the existing issued ordinary share capital of telent.

CILP is a Guernsey limited partnership whose general partner is Pension Corporation GP Limited (“PCGP”), a Guernsey limited company which is authorised by the Guernsey Financial Services Commission. PCGP is advised by Pension Corporation.

The Directors of telent, who have been so advised by Lazard, consider the terms of the Offer to be fair and reasonable. In providing advice to the Directors of telent, Lazard has taken into account the commercial assessments of the Directors of telent. Accordingly, the Directors of telent intend to recommend unanimously that telent Shareholders accept the Offer.

Those Directors of telent who own telent Shares, or have options over telent Shares, have irrevocably undertaken to accept the Offer in respect of their own telent Shares and in respect of those telent Shares which may be issued to them on the exercise of options.

Mr Edmund Truell, Group Chief Executive Officer of Pension Corporation, said:

“The strength of telent’s UK pension fund is vitally important to over 62,000 people; a legacy from what was once the second largest industrial company in the UK. We intend to apply Pension Corporation’s market leading pensions investment and administrative approach to support and enhance the management of the GEC plan.

“We have established Pension Corporation to be a holder of pension funds over the long term. With the excellent quality of our Board and management team, substantial committed funding from our investors and our expertise in managing pension assets and liabilities, we are able to demonstrate our commitment to responsible pension stewardship.

“With this Offer we are also providing telent shareholders with the ability to realise their investment for cash at an attractive value. Once private, we intend to free up Mark Plato and his management team to focus on the operating business and give them our full support in re-building a strong and high quality service business.”

Mr John Devaney, Chairman of telent, said:

“We believe the cash offer of 600p per share from Pension Corporation is a compelling one for shareholders, given the prospects for the operating company and the position of the UK pension fund. The offer represents an attractive premium over the pre-bid price and shareholders will also receive the dividend of 11p per share that has already been approved. This is a good outcome for shareholders and will allow the management team to focus exclusively on the development of the operating business.”

This summary should be read in conjunction with and is subject to the full text of the attached announcement and the appendices. Certain terms used in this summary are defined in Appendix IV to the attached announcement.

Merrill Lynch is acting as exclusive financial adviser and corporate broker to CILP and Pension Corporation.

Lazard is acting exclusively as financial adviser to telent. telent has also received financial advice from JPMorgan Cazenove, its corporate broker.

Enquiries:

Pension Corporation
Petra Peliskova
Telephone: +44 (0)20 7105 2142

Merrill Lynch
Philip Noblet
Noah Bulkin
Michael Findlay (Corporate Broking)
Telephone: +44 (0)20 7628 1000

Equus Group
Piers Hooper
James Sumpster
Telephone: +44 (0)20 7223 1100

telent plc
Monica Coull
Telephone: +44 (0)20 7005 6260

Lazard
Nicholas Jones
Peter Warner
Francois Barou
Telephone: +44 (0)20 7187 2000

JPMorgan Cazenove
Andrew Hodgkin
Telephone: +44 (0)20 7588 2828

Threadneedle Communications
John Coles
Telephone: +44 (0)20 7936 9604

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Pension Corporation has been established as the holding company for its three subsidiary vehicles: Pension Insurance Corporation ('PIC'), Pension Corporation Investments ('PCI') and Pension Security Insurance Corporation Ltd ('PSIC').

Pension Corporation will oversee two main routes to pension assets through PIC and PCI. PIC will continue to insure pension schemes directly, either insuring all or part of pension scheme risks, as the pension risk transfer market continues to develop. PSIC complements this as a Guernsey-authorised reinsurer. PCI will continue to source opportunities for the direct acquisition of corporate assets with attractive and sizeable pension schemes. In both cases, Pension Corporation's expertise will be brought to bear in providing best practice pension scheme management to generate value for the benefit of scheme members.

Pension Corporation intends to provide responsible pension management to Defined Benefit pension schemes and to manage the risks associated with those schemes both directly and as a fully authorised FSA regulated insurance company. Pension Corporation also intends, over a long term horizon, to provide the best possible security to trustees, beneficiaries and sponsors of DB pension schemes. By insuring the risk associated with a DB pension scheme, sponsor businesses remove the pension liability from their balance sheets and also free up management teams to focus on realising the true potential in their core business. Corporate assets acquired by PCI will be managed actively towards optimum value at exit.

With £1.3bn already under management, Pension Corporation, through PCI, has already achieved the UK's largest pension transaction in the corporate sector with its acquisition of Thorn. It has also brought the Threshers First Quench Pension scheme into surplus from a £24m deficit in just three months. Pension Corporation will continue to source such opportunities and has the ability to draw on significant additional capital.

Edmund Truell, Group Chief Executive, Pension Corporation, comments:

"Since our launch a year ago, the pension insurance market has seen some significant changes. With the continued support of a blue-chip investor base and our world-class Board, our highly experienced executive team has successfully developed new routes to providing tailored pension solutions to remove pension liabilities. We have led the way as the first firm to do a corporate pension transfer – and Thorn is by far the largest pension deal in the UK to date. The Pension Corporation, looks forward to providing responsible pension stewardship for the benefit of pension scheme members."

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Pension Corporation Investments (PCI), which acquired Threshers in June 2007, has moved the company’s pension fund from a £24m deficit to a £10m surplus, to the FRS17 benchmark despite the backdrop of increased market volatility. PCI has also grown the £1.17bn assets of the Thorn pension scheme by 1.1% since gaining economic exposure to them in June.

PCI has increased Threshers’ pension scheme assets (excluding escrow) by 3% in six weeks, during a time of increased market volatility. Without this intervention, the strategy being used prior to acquisition would have lost money.

PCI assumed full control and liability for the Threshers pension scheme, known as the First Quench Pension Scheme, which had a £24m deficit according to FRS17. PCI subsequently undertook a series of measures to enhance the security of the scheme. Shortly after acquisition PCI moved the fund into surplus by transferring £32m of cash from the Thresher balance sheet into an escrow account underpinning the First Quench pension liabilities.

PCI then employed state of the art asset and liability management to outperform volatile markets and increase the fund’s accounting surplus to the FRS 17 benchmark. It reduced investment risk within the portfolio by selling all the fund’s equities, which had comprised 60% of investments, after a substantial rally. Consequently the scheme avoided the current market downturn. The PCI team also ensured that there was no sub investment grade credit exposure. Interest rate and inflation risks were then hedged using long dated swaps on 7th August, which locked in a £9m surplus to FRS 17. In addition, absolute return seeking assets are being acquired to construct a portfolio that will no longer depend on the market direction for investment return, and is constructed both to minimise risk and avoid correlated views on the markets.

PCI moved quickly to appoint four new and highly experienced trustees to the First Quench Pension Scheme, all of whom are senior Pension Insurance Corporation partners: Sir Nick Montagu, Graham Cooper, Tracy Blackwell and Mark Gull. .

• Sir Nick Montagu is a former Chairman of HM Inland Revenue and is currently a Board member of Xafinity Group and a member of PwC’s Corporate Finance Advisory Board.
• Graham Cooper is a Fellow of the Institute of Actuaries and founded New Bridge Street Consultants pension and actuarial practice in 1986. He is a board member of United Business Media and Arcadia Senior Executive Pension Schemes.
• Tracy Blackwell is a former Head of Risk Management for Goldman Sachs Asset Management in Europe and Asia. Prior to this Tracy spent five years structuring interest rate, currency and equity derivatives at Goldman Sachs. She subsequently spent one year in the pension services area, working with the firm’s largest pension fund and insurance clients on strategic issues.
• Mark Gull has managed a range of institutional and retail funds including Norwich Union Monthly Income Plus Funds (AA rated by S&P) and the Norwich Union Sustainable Future Corporate Bond Fund (AA rated by S&P). Prior to joining Morley, Mark spent 7 years at Gartmore, where he was Head of Credit and he has an MBA from Cranfield School of Management.

Edmund Truell, Pension Corporation Investments said:

“We are absolutely delighted with the turnaround of the First Quench pension scheme, which has been achieved in a matter of weeks. We’ve avoided both the credit markets and equity positions at a time of market de-risking, and so we’ve been able to transform both the risk and funding profile of the scheme. Growing the assets of the First Quench and Thorn schemes in just six weeks, and in such a volatile market, is a testament to the experience of our team. Whilst we use sophisticated models to assess risk, we do not rely on them to the exclusion of sound investment judgment.”

“By using state of the art asset and liability management we have increased the assets in these schemes, leaving them better funded and with improved security for pensioners. I’m sure the new First Quench trustees will prove invaluable in maintaining the scheme’s investment discipline and asset base, for the benefit of pensioners and sponsors alike.”

Enquiries

Equus Corinne Daniels / Vimala Camadoo +44 (0)20 7223 1100

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Pension Corporation, comprising Pension Insurance Corporation, Pension Corporation Investments and Pension Securitisation Investments, announces the appointment of Charlotte Crosswell as Head of Business Development.

Pension Corporation aims to lead the field in pension insurance and pension solutions, and has the largest capital backing of any dedicated pension insurer in the UK.

Charlotte will join Pension Corporation from NASDAQ, where she has run the international business since 2004, managing NASDAQ’s relationships with companies, advisers, stock exchanges, regulators and governments outside of the United States. Prior to joining NASDAQ, she worked in European Equity Sales at Goldman Sachs and subsequently, held various management roles at the London Stock Exchange.

Edi Truell, Group Chief Executive comments:

“I’m delighted to welcome Charlotte to Pension Corporation. In light of the increased interest within the pension industry and the subsequent activity for the provision of pension insurance and our proprietary pension solutions, it has become essential to hire someone with solid experience within business development to convert our pipeline into more assets. Her appointment shows our long-term commitment to the market.”

Charlotte Crosswell comments:

“I am very excited to be joining such an innovative company with a wealth of experience within the team. Pension Corporation has been set up at a key time for the pension insurance industry and has already made a strong start on the road to leadership of the rapidly growing UK market”.

Enquiries:
Equus James Sumpster +44 (0)20 7223 1100

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field in pension insurance, with the largest capital backing of any dedicated pension insurer in the UK, announces the appointment of Mark Gull as the Head of Fixed Income Asset Management.

Mark joins from Morley Fund Management, where he was a highly successful senior fund manager and is AAA rated by Citywire. In 2006 Mark was nominated for the Investment Week Fixed Income Fund Manager of the Year.

At Morley Fund Management, Mark managed a range of institutional and retail funds including the Norwich Union Monthly Income Plus Funds (AA rated by S&P) and the Norwich Union Sustainable Future Corporate Bond Fund (AA rated by S&P). Prior to joining Morley, Mark spent 7 years as a fund manager at Gartmore, where he ran a range for sterling based institutional and retail bond funds. Mark was also Head of Credit at Gartmore and developed Gartmore’s credit process for funds investing in sterling corporate bonds and high yield. Mark previously worked in corporate bonds sales and corporate finance at BZW.

At Pension Insurance Corporation, Mark’s role will be to head up the deployment of the majority of PIC’s investable assets into LIBOR + strategies. He will also advise the Guernsey based reinsurer Pension Security Insurance Corporation on the investment of its assets. A spokesperson for Pension Insurance Corporation, commented:

“I am delighted to welcome Mark to Pension Insurance Corporation. As a leading fund manager with an AAA rating, Mark brings with him a wealth of experience that further goes to strengthen our highly distinguished team. We are looking forward to working with Mark to affirm Pension Insurance Corporation’s position as the leading provider with the largest capacity of pension insurance to UK Defined Benefit pension schemes.”

Mark Gull comments:

“The pensions insurance market offers exciting opportunities and I am thrilled to be joining such a reputable firm. Pension Insurance Corporation has built up a formidable team and I am very much looking forward to working with them.”

Enquiries:
Equus James Sumpster +44 (0)20 7223 1100

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Pension Insurance Corporation (PIC) has hired Matt Gore, formerly Head of Bulk Annuity Operations at Prudential, as Chief Administration Officer. In his new role, Matt will oversee the day to day interaction with Paymaster, Pension Insurance Corporation’s Pensions administrator, provide support for the transaction of Pension Fund schemes and help with marketing efforts.

Matt Gore, 36, was appointed Head of Bulk Annuities & Operations at Prudential in September 2004. In a career spanning 18 years at the Company, he had a variety of roles starting as a Permanent Health Insurance Senior Administrator and moving into Bulk Annuities Sales in 1998. Subsequently he rose to Bulk Annuities Special Implementation Projects Manager (2000 – 2002) and Bulk Annuities Delivery Manager (2002 – 2004).

Edi Truell, Group Chief Executive comments:

“I’m thrilled to welcome Matt to the team at Pension Insurance Corporation. He is one of only a handful of senior operators in the UK pension insurance space, and his understanding of the market is second to none. As Chief Administration Officer his input will be invaluable.”

Matt Gore, comments:

“Pension Insurance Corporation is undoubtedly one of the heavyweights to emerge in the pension insurance market in recent years, and I’m delighted to be joining such a formidable array of talent. The pension insurance industry is finally coming of age, and I’m looking forward to working with the team at PIC to consolidate its position as one of the leading players.”

Enquiries
Equus Piers Hooper / James Sumpster +44 (0)20 7223 1100

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London, 23 April 2007 -- Following a search of custodians by Pension Insurance Corporation (PIC), JPMorgan Worldwide Securities Services today announced that it has been appointed to provide custody, fund accounting and associated services for PIC.

Tracy Blackwell, Investment Partner at PIC said, “After an extensive search of custodians, we decided that JPMorgan’s leading product and service offering, coupled with their fully integrated approach to supporting our developing needs made them a perfect partner for us.”

Benjie Fraser, head of sales and relationship management for UK pensions and charities at JPMorgan Worldwide Securities Services, said, “We are delighted to have the opportunity to work with such an exciting and innovative company as PIC. This appointment demonstrates our high quality of services and strong commitment to working in partnership with PIC as their business grows. A key reason for PIC selecting JPMorgan was the resources we can contribute to the transaction.”

About JPMorgan Worldwide Securities Services
JPMorgan Worldwide Securities Services, a division of JPMorgan Chase Bank, N.A., is the global industry leader with $14.7 trillion in assets under custody. JPMorgan provides innovative custody, fund accounting and administration and securities services to the world’s largest institutional investors, alternative asset managers and debt and equity issuers. JPMorgan Worldwide Securities Services leverages its scale and capabilities in more than 90 markets to help clients optimize efficiency, mitigate risk and enhance revenue through a broad range of investor services as well as securities clearance, collateral management and alternative investment services. For more information, please visit www.jpmorgan.com/wss.

About JPMorgan Chase & Co.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $1.4 trillion and operations in more than 50 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset and wealth management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its JPMorgan and Chase brands. Information about the firm is available at www.jpmorganchase.com

About Pension Insurance Corporation
Pension Insurance Corporation (“PIC”) is a new financial institution that intends to provide up to £20bn of new capacity to the rapidly growing UK pensions insurance market. PIC is fully authorised by the FSA as an insurance company and intends to become the industry leader in the provision of pension insurance to UK Defined Benefit pension schemes utilising the largest capital base of any dedicated pension insurer in the UK. Working with its powerful shareholders who can augment PIC’s circa £1bn of equity commitments to insure even the very largest of pension risks, it will shorten decision making lines that will enable PIC to move quickly when agreeing pension solutions, providing security and increased certainty to pension trustees, beneficiaries and sponsors of defined benefit pension schemes.

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The Pension Insurance Corporation (PIC), a newly-accredited insurance company participating in the UK bulk annuity buyout market, has selected an in-house deployment of Algo Risk to manage the risk of their assets and liabilities.

PIC aims to become the industry leader in the provision of pension insurance to UK defined benefit pension funds and annuity providers.

Algo Risk is an easy-to implement solution that provides unparalleled functionality through a combination of advanced portfolio analysis and valuation, risk management and risk-based decision support across the organization, in real time. This helps clients to achieve their objectives of increasing investment returns, complying with regulations and remaining competitive. The solution’s underlying Mark-to-Future architecture is both asset class and risk factor agnostic, enabling the solution to span all holdings and investment strategies across the enterprise, whether the products are exchange-traded or over-the counter.

“We believe that risk management is an essential component of the insurance solution we bring to our clients. We looked at a number of systems and found that Algorithmics understood the complex needs of our business,” says Tracy Blackwell, Investment Partner at PIC. “Algo Risk gives us the toolkit to intelligently manage the risk of our assets. The ability to stochastically model our assets as well as our liabilities gives us a better insight into our overall risks and capital management.”

“We are delighted with the addition of the PIC to the growing number of insurance clients who are now using Algo Risk to allocate their assets more effectively against their liabilities,” says Dr Andrew Aziz, Managing Director of Risk Solutions at Algorithmics. “With growing pension deficits, and increasing regulatory pressures to manage them, this has been a particularly strong trend in the insurance and pension fund industries. At the same time, it is also no coincidence that liability-driven investments are arguably one of the hottest investment products currently available in the market.”

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Pension Insurance Corporation (PIC), the latest company to join the pensions buyout market, is developing a new type of longevity bind that would allow private equity firms to take on chunks of Britain’s pensions liabilities.

Edmund Truell has a thing about penguins. A framed poster of a Macaroni penguin dominates his office. Two penguins standing back-to-back form the logo of Pension Insurance Corporation, one of the new breed of pensions buyout and insurance companies seeking to challengethe duopoly of Prudential and Legal & General in taking on pension scheme liabilities in the UK. And penguins are all over Pension Insurance Corporation’s website. Truell tries to keep a straight face as he explains that penguins represent the corporate values of Pension Insurance Corporation. “Look at the movie March of the Penguins. They work together to protect each other from a harsh environment. They take a longterm view and endure enormous hardship, but ultimately overcome extreme adversity,“ he said. He also has a thing about actuaries, except that he doesn’t like them as much as penguins. “I have endured hours of obfuscation from actuaries. They have a habit of wanting to reduce everything to a single number and can find 27 reasons not to do something. “Most actuaries and the pension schemes they advise have consistently underestimated life expectancy, and a single actuarial number for life expectancy is not particularly useful for schemes with very complex liabilities.” The failure to predict, manage and price longevity risk – the risk that members of a pension scheme will live longer than expected – is one of the biggest factors behind defined-benefit pension fund deficits in the UK, which are estimated to be a £52bn drag on the balance sheets of FTSE 100 companies. For full article please download PDF

Dubai based Istithmar today announced that it has committed to an investment of USD 170 Million in Pension Insurance Corporation Holdings (PICH).

Pension Insurance Corporation (PIC), a wholly-owned subsidiary of PICH, is a financial institution providing substantial capacity for the pensions insurance market. Fully authorized by London’s Financial Services Authority (FSA), PIC is positioned to become the industry leader in the provision of pension insurance to UK defined benefit pension funds and annuity providers. PIC is backed by a strong shareholder base and world class management team and it intends to provide security and increased certainty to pension trustees, beneficiaries and sponsors of defined benefit pension schemes.

PICH’s distinguished list of shareholders come from the banking, private equity, asset management and reinsurance sectors; they include JC Flowers, Swiss Re, ABN AMRO, HBoS, Royal Bank of Scotland, Sampo, Coller Capital and Cycladic.

Istithmar’s CEO, David Jackson, commented, “Istithmar is excited to become a substantial shareholder in PICH. We believe that the pension insurance market has incredible growth prospects and PICH, with its exceptional management team and strong shareholder base, is well poised to provide viable pension insurance solutions in the UK market.”

A spokesperson on behalf of PICH said: “We’re delighted to welcome Istithmar as a strategic shareholder and believe that Istithmar’s support will add significant value to our business. We look forward to a successful and prosperous working relationship”.

This transaction by Istithmar is part of a continued focus in conducting strategic investments in financial services companies around the globe.

About Istithmar:

Istithmar is an alternative investment house based in the United Arab Emirates. It is 100% owned by Dubai World, which is in turn wholly owned by the Government of Dubai. Istithmar was established in 2003 with the key mission of earning exceptional returns for its investors while maintaining due regard for risk.

Istithmar, which means investment in Arabic, applies global expertise with local insights to coordinate the appraisal and implementation of various opportunities. Istithmar’s ‘I’ investment philosophy is based around three core principles -- Ideas, Inquiry & Integrity -- sets the foundation for the firm which has a broad portfolio of highly successful companies in markets from North America to Europe to Asia to the Middle East.

Istithmar’s portfolio consists of more than 50 investments in the financial services, consumer, industrial and real estate sectors. To date Istithmar has deployed more than USD 3 billion of equity around the globe. For more information on Istithmar, please visit our website: www.istithmar.ae

For further information please contact:
Mohamed Tahboub or Ghada Kammoun
PanGulf PR,
Tel: +9714-295 3456
Fax: +9714-295 1027
E-mail: mohamed@batespangulf.com

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Paymaster, one of the largest providers of outsourced pensions administration and annuity services in the UK, has been appointed by the Pension Insurance Corporation (PIC) to provide its pensions administration and payment services.

PIC is a newly formed insurance company established to provide pension insurance to UK defined benefit pension funds and annuity providers.

Keith Boughton, Director of Annuity and Pension Payroll services, Paymaster commented: “We are really delighted to be appointed by PIC whose target market and ambition makes them an ideal partner for Paymaster. This appointment recognises the special skills we deploy in managing an existing annuitant and pensioner population of over 2 million people alongside an extensive portfolio of active and deferred members from corporate pension arrangements.”

A spokesperson from Pension Insurance Corporation added: “With our driving aim to become the industry leader in the provision of pension insurance to UK defined benefit pension funds, the long established expertise for which Paymaster is recognised made them a natural choice in providing pensions and annuity administration and payment services for us.

Companies are now increasingly aware of the risks posed by their pension liabilities and Paymaster will provide much needed support to us in tackling this market”

For further information please contact:

Robert Branagh, Director of Client Development
Paymaster,
Tel: +44 (0)1293 604 488
Marlene Scott / Karen Wagg
Polhill Communications,
Tel: +44 (0)20 7655 0510
Email: m_scott@polhill.com / k_wagg@polhill.com

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