It has not been done before but it may not be the last such deal. Stagecoach trustees have exchanged the sponsorship of their pension scheme to Aberdeen and in the deal members get the prospect of much better payments than they could have expected if the scheme had bought in an insurer.
Iain Pearce, PwC lead transaction advisor to the Stagecoach Trustee said;
“This transaction is a great outcome for members, who are expected to receive material improvements over time, within a very low risk framework. We’re delighted to have led the advice, setting out the full range of options, agree a preferred outcome and then executing this innovative transaction. It has been a pleasure to work with the various stakeholders and other advisors involved at pace to deliver this trustee-led innovative transaction to support positive member outcomes.”
Pearce
LCP’s Steve Hodder advised the company and said;
DB pensions innovation boosts bus drivers’ pensions
On 4 December, it has been announced that Aberdeen Group has agreed to replace Stagecoach as sponsoring employer of the £1.2bn Stagecoach Group Pension Scheme.
This agreement follows an extensive process of considering endgame options for the Scheme, where LCP has advised Stagecoach on its options and the commercial aspects of this transaction.
Under the arrangement the Scheme, which benefits from a strong surplus position, will continue to ‘run on’. Aberdeen will take on responsibility for the Scheme’s funding as well as the management of the Scheme’s assets.
The arrangement is expected to bring significant benefits to the Scheme’s 22,000 members. It has been designed to seek to ensure long-term security for the Scheme, with robust guardrails that protect the Scheme’s financial security. Members will also benefit from an initial uplift to all benefits and better inflation protection. Furthermore, the arrangement will also offer the prospect of further pension increases for Scheme members in the future, generated by Aberdeen investing in productive assets (with Aberdeen receiving a minority share of any surplus generated).
This innovative transaction supports the Stagecoach Group’s objective of simplifying its business through settling its arrangements with the Scheme and ensures the interests of pension Scheme members and Aberdeen are closely aligned.
It follows Aberdeen’s decision earlier this year to run on its £2.6bn DB pension scheme, with surplus unlocked for the benefit of Aberdeen and the scheme’s members.
Commenting, LCP Partner and lead adviser to Stagecoach, Steve Hodder: “We are delighted to have helped Stagecoach reach their pensions destination, with an innovative solution that is expected to deliver a meaningful boost for 22,000 members. This example highlights a continuing trend of well-funded DB schemes being viewed as “an asset” for their members and sponsor, in the right circumstances.”Commenting, LCP Partner and Head of LCP’s corporate consulting practice, Gordon Watchorn: “This is an excellent and innovative solution given the specific combination of circumstances of this scheme. At a time of considerable change for DB pensions, this case reinforces the value of bespoke and innovative advice to ensure our clients reach the best outcome given their objectives.”
Hodder
Initial thoughts of Pension Plowman
There are many lessons to be learned here. The unions can learn how to fight for members, professional trustees can learn how to improve the structure of the members and lawyers and regulators can learn how to deal with legacy clauses in trusts that prevent members benefiting from success in funding the pension.
My understanding is that the members will be receiving bigger pensions now and in future and they have a mutual interest in the Stagecoach pension scheme , just as Aberdeen (the new sponsor) does.
There is a surplus of £220m, CMS has acted for the Trustees, Slaughter and May – Aberdeen, Allen & Ovary Stagecoach. Aberdeen will get a share of this mutual business style arrangement, the caps on indexation on pension increases have been ripped up. Members will get the majority of all that the “business” of this pension makes for them. This has the fluidity and entrepreneurial feel of a CDC scheme. Most important of all , it is making better pensions for drivers who need more income in later life. The average joiner of a bus driving company is mid forties, this DB scheme is maturer.
Stagecoach sees no further liabilities from pension and can focus on the core business which we see on our streets everyday. There will of course be benefits in the mutuality of the new arrangement for all parties, Stagecoach’s workforce are mature of age and pension savvy, they have a history of being a firm that sees pensions as deferred pay and their influence on the bus industry is clear in other firms such as First Group,
Members will get an immediate extra payment, a Christmas bonus. They will get an immediate pension pay rise of 1.5%. £50m will be spent on members straight away.
I can think of no better Christmas present than this deal which makes sure that money is paid to the people who earned it when it’s needed. I hope the market will look favourably on these important deals both at Stagecoach and Aberdeen.
learning how to do it