L&G announced on November 24th that it had agreed a £4.8 billion full buy-in with the Boots Pension Scheme . Boots also made an announcement that the deal had been done , stating unequivocally that scheme benefits remained unchanged.
In their press release L&G boast of benefits to members
This buy-in secures the benefits of all 53,000 retirees and deferred members of the Scheme, making it the UK’s largest single transaction of its kind by premium size and, for L&G, the largest single transaction by number of members.
Such security comes at a cost. An insurance buy-out is reckoned to cost 20% of member’s funds in fees and in meeting insurance company’s margins. It is not just a risk transfer, it is a transfer of funds that could be invested in gilts and productive finance (two of the three Hunt Mansion House Criteria) to corporate bonds, (aka wet cement).
The buy-out is requiring Walgreen Boots Alliance to pump an extras £670m into the pensions scheme, all of which will be spent on securing the buy-out – but not improving benefits (or even crystalizing discretionary benefits) .
It should not be undertaken lightly. It is deemed to be in the member’s interests but members are rarely if ever consulted on a buy-out. It would seem from this article in Professional Pensions that the member’s union has only been alerted to the Boot’s buy out once it had been done.
Now we hear that Pharmacists are considering submitting a series of formal complaints to the Boots Pension Scheme raising concerns over the treatment of discretionary benefits as part of the fund’s £4.8bn buy-in with Legal & General (L&G).
The Pharmacists’ Defence Association (PDA) said the trustees’ decision to secure a buy-in of the benefits through an arrangement with L&G included the removal of the option to take a full pension from age 60 – benefits the trustee believe and the scheme rules state were discretionary and not a member right.
PDA Union national officer Paul Moloney explained:
“We have considered, with our advisors, the claim by the trustees of the scheme that the option to take an unreduced pension from 60 was discretionary and not a right and believe there is insufficient evidence to fully support this claim. We are therefore questioning whether this option should have been secured as part of the buy-in and not ended with immediate effect.
“Instead, we believe benefit statements issued to members, at the very least are contradictory, and clearly state that a full pension will be payable from a member’s 60th birthday, with no reference to this benefit being discretionary and therefore subject to a regular review by the trustees. Instead, the benefit statements give the impression that an unreduced pension from 60 is a right with no indication that retirement plans should not be based on the benefit statements.”
“Although we recognise the advantages a buy-in can bring to the overall security of benefits it is important that it is done correctly. We believe there is sufficient doubt over the claim that the unreduced pension was discretionary and can be ended with the buy-in.”
The PDA said members who have benefits in the scheme and who have concerns about the change have the right to use the Boots Pension Scheme disputes procedure to complain about the removal of the option to retire at 60 without a reduced pension.
The PDA said, following an online meeting of over 100 affected members, it would now be sending out template complaint letters setting out concerns regarding the discretionary nature of the benefit and the way it has been communicated to scheme members over the years.
But it stopped short of criticizing the buy-out itself and the £670m it was costing Boots.
Where were the PDA during negotiations?
The union first communicated its misgivings to members on December7th. Over two weeks after the buy-out was announced. This was picked up in Pharmacy News
12 days later , it issued a second report to members which has been circulated to the press, Pension Age and Professional Pensions both re-printing Moloney’s statement.
This followed a question in Money Mail , placed by an anonymous Boots pensioner and answered by Steve Webb and reported on by Stephanie Hawthorne and this blog.
Three questions persist
- Are the trustees and ultimately Walgreen liable for discretionary payments from 60 from deferred pensioners
- Why wasn’t this issue raised during the negotiations by member nominated trustees?
- Was the estimated £960m buy-out cost and the £670m pumped into the scheme to get there- the best use of trustee and corporate funds?
The buy-in is effectively a swap of a big insurance policy for the scheme assets. However the trust and its trustees still remain in place. The questions for affected members is to what extent they can influence the terms under which the buy-in operates. Is it a done deal or are the trustees still on the hook for the cost of offering early retirement (if the ombudsman finds against them)?
The second question is over the union representation (or lack of it) on the Boots board. By law 1/3 of trustees must be member nominated, Law Debenture are a corporate trustee leaving 6 remaining , it would be normal for at least one of the trustees to be a union representative – what was the union doing? The trustees are listed here
As for the cost of buy-out, I very much doubt that such sums can be justified in terms of member value. As the FT comments , this is an M&A play
By offloading the pension liabilities, Boots has removed one obstacle to Walgreens selling the business. Last year, the US company abandoned an attempt to sell the chain, pointing to an “unexpected and dramatic change” in market conditions.
These are questions that should have been asked during the negotiations. Once the negotiations had ended and the deal was done, Boots published a statement to members which began
Questions that aren’t going to go away
This has prompted Jnamdoc, the pseudonym of one of this blog’s more prolific commentators to ask
Who is protecting the members’ interest?
the lack of a collective voice for members in the UK is lamentable.
Trustees who should represent members, and should more properly have used the overfunding in the scheme to protect customary discretionary benefits, will instead hide behind the TPR mantra of untempered at any cost de-risking and ‘flight path’ aspirations to insurer as a poor excuse for not representing members’ interest.
The expected insurer profit on the transaction will be circa £1bn, money that should have been invested by Trustees to help provide discretionary benefits. This will be brushed under the carpet, lost in opaque accounting disclosures…
The point of having discretionary powers should be to recognise that in some circumstances, such as in the midst of an inflation and low growth cost of living crisis, Trustees should use discretions to spend surplus on protecting members’ living standards.
Once again it is the ‘industry’’, that should be there to protect and serve members’ interests, that wins. Everyone wins, members lose. It’s a national disgrace.