Around lunchtime on Tuesday (5th November) my newsfeed got a message that NatWest’s pension scheme had just completed the biggest annuity purchase in British pension. history.
This was reported by Mark Kleinman, City Editor at Sky News.
Sky News has learnt that pension trustees at NatWest, which is on track to become wholly owned by private sector investors after more than 15 years in partial taxpayer ownership, have offloaded a roughly £11bn chunk of its corporate pension scheme to Rothesay, the England cricket team’s Test match sponsor.
There was no press release
The latest deal was disclosed – without reference to Rothesay – in NatWest’s third-quarter results statement published last month, but has not been publicly reported.
I am no banking analyst but having been through the highlights and accompanying slides, I have found no evidence of the transaction and could not find this statement
“In September 2024, the Trustee of the NatWest Group Pension Fund entered into a further buy-in transaction with a third-party insurer for some of the liabilities of the Main Section,” .
The persistent Kleinman followed his nose
Several people familiar with the transactions said the counterparty was Rothesay, which declined to comment on Tuesday.
In a statement issued to Sky News, a “spokesperson” for the NatWest Group pension fund confirmed the deal, saying:
“As part of its long-term strategy, the Trustee of the NatWest Group Pension Fund has recently insured around one-third of the Main Section with buy-in policies.”
Members are immunised from the threat of NatWest being unable to meet its pension obligations by funding any deficit
“The buy-in policies are Fund investments that further improve the security of member benefits by increasing protection against demographic and investment risks”.
“As with other investment decisions there is no change to member benefits and members will continue to receive their benefits directly from the Fund.”
Rothesay Life are reported to be leading the insurance of the £11bn of debt, Rothesay was established by Goldman Sachs, a rival to NatWest in investment banking. It’s principal shareholders are GIC (a Singaporean investment company) and MassMutual (a Massachusetts based insurance company)
It is an odd quirk of financial economics that can lead to one of our four large banks putting a third of its pension liabilities into an insurance policy that ultimately reverts to an American mutual insurer and a
It is odd that this deal is shrouded in secrecy and has not been advertised by NatWest or by Rothesay (if Rothesay are the counterparty), Rothesay is not shy of advertising its deals
It took two days for the Pension Press to catch up , Professional Pensions finally republishing Kleinman’s story, again without any comment from Rothesay
The Professional Pensions report suggests the deal has yet to be done, in contrast to the NatWest statement to Sky. The picture is certainly unclear.
Why this secrecy?
The transaction is huge and relates to a bank which is still partly in public ownership. It has significant import being the largest bulk annuity purchase ever transacted in the UK. It will materially move the dial on capacity of Rothesay and others to do further deals, it changes the capacity of NatWest’s pension scheme to invest in productive finance.
For all these reasons , we might have expected a public announcement. What we have instead is investigative journalism unveiling some of what has happened without confirmation from the insurer doing the deal.
Let’s hope we hear more in due course, for now this is all we get.
Could the reason for the secrecy be the obvious inconsistency with the Chancellor’s investment for productive growth agenda?
I speculate:
This could be purely an investment decision by the Trustees.
From the Members point of view their pensions are still being paid by NWB pension scheme so they still have the sponsor guarantee in place and behind that the PPF.
There is therefore no administration cost saving to the pension scheme but what the Scheme is securing an income stream that matches the pensions outflow and not subject to market volatility.
With the recent hikes in Gilt yields is there still any risk premium offered by investment grade credit, or even world-wide equities, over gilts, the most volatile asset class?
Is the lack of publicity more due to the level of risk now being taken on by Rothsay than any reduction of risk in the NWB pension scheme?
Would the FSCS maintain the payments to the NWB pension scheme if Rothsay should fail?
Would be interesting to know how the updated TAS 300 was applied here:
To help clarify where TAS 300 applies or may not, the FRC updated its definition of a bulk transfer to make explicit that it is a transaction that severs the link between the scheme and the liabilities being transferred.
So, for example, a buy-out is a bulk transfer but a buy-in is not, although TAS 300 should apply when advising on a buy-in if this is expected to lead to a future buyout.
Wow. This is incredulous.
So the Trustees of one of our largest financial institutions (1/3rd State owned) considers that it is too risky to run-on the scheme, favouring instead an opaque private business (who I assume will offshore a big load of the risk), while selling down a huge chunk of gilts replacing them with higher yielding / risk corporate credit.
Not to mention the enormous £bns of value shift away from the scheme to Rothesay; good for them and Xmas bonuses.
Unfortunately, more power to the arm RR for her own Mansion House proposals, no doubt questioning the motivations of all involved as custodians of our national investment capital?
It’s not that secret. It’s on page 30 of the detailed Q3 results which can be downloaded here: https://investors.natwestgroup.com/results-centre
Page 30 says
“Pension risk
“In September 2024, the Trustee of the NatWest Group Pension Fund entered into a further buy-in transaction with a third party insurer for some of the liabilities of the Main section. Around a third of the Main section is now covered by insurance policies that give protection against demographic and investment risks, improving security of the member benefits. The transaction does not affect the 2024 statement of comprehensive income because the net pension asset is limited to zero due to the impact of the asset ceiling.”
An explanation of the estimation of the “asset ceiling” under IAS 19 is not provided.
As clear as mud, then.