I am amazed that people like Sammy at Rothesay see deals that do ordinary people good as bad news to me!
I am aware that many people are fed up that they did not do the deal for Stagecoach but the deal has been done with all parties including the regulator that this is in the member’s interest – isn’t that what’s meant to be the “thing”.
My naivety was obvious to this chap, who assumed I’d accept that all parties put members first.
Let’s ask ourselves how the insurance deals were justified by the actuaries and trustees who are supposed to be guided by the TAS 300 assessment that chart “value for money” for members as well as sponsors.
Here are the comments of Allen & Overy on the Stagecoach deal with Aberdeen to transfer the pension.
A&O Shearman acted for Stagecoach in an innovative risk transfer transaction, working collaboratively with the Trustees and Aberdeen. After an extensive process of considering endgame options for the Scheme, an agreement was reached whereby the Scheme will continue to “run on” with Aberdeen as the new sponsor.
The arrangement is expected to bring significant benefits to the Scheme’s 22,000 members with an initial uplift to all benefits and better inflation protection out of existing Scheme surplus. The arrangement will also offer the prospect of further pension increases for Scheme members in the future without compromising the long-term security for the Scheme.
“It has been exciting to work with Stagecoach on a risk transfer transaction which does break new ground…”
Commenting on the transaction, A&O Shearman partner and Head of UK Pensions, Neil Bowden said:
“It has been exciting to work with Stagecoach on a risk transfer transaction which does break new ground – delivering an “exit” for Stagecoach but facilitating a “run on” within the occupational pension scheme framework that both the Trustees and Aberdeen found attractive. The initial uplift to members benefits out of existing surplus is also an interesting feature compared to more traditional insurance transactions when any benefit augmentations can be a number of years later when the final buy-out takes place.” (Ed’s bold and colour)
It’s nice to think that an uplift to member’s pensions is “interesting” and that it’s something that traditional insurance transactions don’t provide on “buy in”. We hear a lot about fiduciary duty of trustees being towards the best interests of members, I hope that it is a duty we see more in practice than on the lips of trustees!
A fabulous deal for pensioners! Great credit to John Hamilton. First by investing in equities and productive assets and tripling the pension fund assets over the years ( against the assorted array of regulators and LDI high priests). Then by steering patiently and creatively away from buyout to produce a deal where pensioners receive the lions share of the surplus. Disappointed of course not to have been the sponsor… but WELL DONE John.
As an independent chair of trustees when discussing the 2018 valuation which showed the scheme in surplus under technical provisions for the first time (for at least 20 years / ? ever), I surprised the Board of the sponsoring employer by saying that looking forward if the employer’s covenant or commitment to a fully open DB scheme weakened the pension scheme would look for a new employer.
At the time I had no instances I could refer to. The transfer of sponsorship from Stagecoach to Aberdeen now provides a clear precedent example.
To me Stagecoach appears to be the loser as they no longer have an interest in the investment performance of the scheme or the asset that has been built up. However their commitment to Aberdeen in respect of current employees is no different and in the long run likely to be less onerous than that of an employer contributing to a DC arrangement; and retaining the recruitment and retention benefits of offering a “gold plated” DB pension promise.
In 2018 the nearest example I could think of was the Pensions Superfund (promoted by Edmund Truell and Henry Tapper). I deeply regret that type of option is not currently available particularly for smaller employers to whom the legislatively bloated bureaucracy and administrative costs of running on your own scheme places an excessive burden on the employer..
Thank you for the reference. Pension SuperFund was an explicitly capital backed to an v high level of safety, and explicitly ‘shared outcomes’ model. Investors made a return on their capital backing… but only if members also received a ‘Christmas bonus’ at the same time. Sadly TPR/DWP/Treasury would not stand up to the relentless lobbying of the ABI and an ideological faction that to this day cannot recognise that a single covenant is always more risky than a pooled financial covenant, nor that in the long term, bonds are always producing worse outcomes than equities and productive assets
Some are suggesting the earlier transfer of the GEC Marconi DB scheme(s) to “telent” (let’s call it Telent from now on) was a precedent in 2006/07.
No doubt Ed Truell will be familiar with this example!
In November 2007, Telent, which had inherited GEC’s £2.5bn pension scheme(s) with several tens of thousands of members, was being purchased by Pension Insurance Corporation for £400m; the following month its shares were delisted and Telent became a private company.
In letters to the 60,000 members of the scheme and TPR, chairman of the trustees Chris Holden (whom I had known at Arthur Andersen) said the trustees were not told of the offer by the buyout firm’s subsidiary – Co-Investment No.5 LP Incorporated (CILP) – or of any plans for the pension scheme.
The Pensions Regulator (TPR) intervened by appointing three independent trustees to the pension scheme due to concerns raised by the existing trustees, prompting PIC to seek a one-week extension on their takeover bid to evaluate options and address TPR’s involvement, aiming to protect scheme members’ futures amidst potential takeover complexities.
TPR’s report at the time is available at
http://www.thepensionsregulator.gov.uk/media/olbltwfz/section-89-report-telent.pdf
From 2008 Telent made various business acquisitions, including intelligent traffic systems group TSEU, communications infrastructure provider, the Alan Campbell Group, and telecoms service provider, Premises Networks.
In September 2019, the pension scheme, described by Telent as a “disproportionately large liability”, was bought out by Rothesay Life in a £4.7bn deal.
Fake news. We had had six months of meetings with Telent and the tPR beforehand.
Bottom line : 69,000 pensioners received full, inflation linked pensions. About 5,000 exercised pension freedoms over the 12 years. From a pension fund that was fully funded at the time of the corporate take private, but due to the inept oversight of the tPR-appointed trustees, then lost about £700m in the next 9 months. Brilliant job by the new trustee board, in collaboration with Pension Corp and the company, to recover all of that and then make more steady returns.
I don’t think this is a capital backed journey (the Truell model) – it looks like mutuality between the Stagecoach Trustees and Aberdeen in the interest of them both but also Stagecoach. Stagecoach get rid of an expensive DB plan and all the costs of a buy-in and then buy-out. Their 22,000 staff are going to be lot happier than a buy-out where the big winner is an insurer. I can’t help thinking a happy workforce is a productive one.
As regards the future, there is a large amount of saving but not (yet) into pensions . I wonder if Stagecoach and other bus companies are going to raise their game for 2027. The outcome of the Pension Schemes Bill and other legislation going through must be “interesting”.