Dutch Pension Buyout Market Ignites | Chief Investment Officer

Aegon has taken on the assets and liabilities of two Dutch pension funds in one of the first—and largest—buyout deals to date in the Netherlands.

AMF and BFM, pension funds for mineworkers, have transferred the accrued assets of 28,000 members to the life insurer. Aegon has committed to pay benefits until the final wind up of the schemes.

Under the terms of the deal, AMF members’ benefits will increase by 8%, while BFM’s members will receive a 10% uptick. The funds will not merge, they confirmed in a statement.

“As an independent pension fund in the future, financial participants are now better off by moving to an insurer,” said Fer Pfeiffer, president of AMF, on behalf of both funds.

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In a letter to members, the pension board explained its decision: “The costs of managing pension entitlements for our members are rising while our assets are decreasing because we need to pay out pension benefits. Therefore, we have less money available to invest. With this transfer to an insurance company, we want to safeguard your pension entitlements both now and in the future.”

Both schemes were more than 100% funded, which is a regulatory requirement in the Netherlands.

Aegon is one of the few players in the Dutch buyout market, which is dominated by insurers. This latest is the largest deal of its kind in the Netherlands, but with combined assets of just €953 million—€816 million of which is attributed to the AMF fund—the market trails those in the US and UK where “mega-deal” buyouts have shifted billions of dollars and pounds off company balance sheets.

Legal & General, one of the biggest buyout players in the UK and US, announced they would enter the Dutch market last year, but are yet to announce any activity there.

Ian Aley, head of pension risk solutions at Towers Watson, told CIO last year: “In Holland, a number of insurers and reinsurers we speak to have an interest in the Dutch market [for pension risk transfer deals]. But, and this is a massive oversimplification, broadly they see it as the next big market to develop, but it’s not there yet.

“One of the issues for Dutch pension funds is the difference made by longevity assumptions between themselves and insurance companies. In the UK, the two models have more or less merged, but in the Netherlands they’re further apart.”

The deal has been agreed by the funds’ trustee boards but is awaiting final approval from the Dutch Central Bank.

The UK’s Pensions Regulator has hammered out a deal between Lehman Brothers and its UK pension to secure funding and stop it from falling into the lifeboat Pension Protection Fund (PPF).

Six entities responsible for the funding of the Lehman Brothers UK pension will stump up for a full buyout of the fund, including plugging an estimated deficit of £184 million. It is the biggest settlement arranged by the regulator since it was established in 2005 and brings to an end six years of legal battles between it, trustees, and the Lehman Brothers group.

International investment bank Lehman Brothers filed for bankruptcy in September 2008 in what became a watershed moment in the global financial crisis. The UK company, Lehman Brothers Limited, was also placed into administration, leaving a defined benefit pension with a funding deficit, estimated to be £184 million as of June this year. Prior to the bankruptcy the pension had been supported “with a viable recovery plan”, the regulator said.

“This case demonstrates that the regulator’s anti-avoidance powers can be used effectively, even in highly complex international insolvency situations.”—Stephen Soper, interim chief executive of the Pensions Regulator.The Pensions Regulator immediately launched an investigation into the impact on the pension and in May 2010 took action by “seeking the issue of a financial support direction (FSD) to certain members of the Lehman Brothers Group in support” of the fund.

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The warning notice issued by the regulator initially sought to hold 44 companies within the Lehman group to account for the funding of the pension, but this was reduced to just six in September 2010. After a number of challenges to this ruling—including a decision by the Supreme Court that FSDs should not outrank other creditors of bankrupt companies—the six companies have agreed to settle. If the pension had gone into the PPF, many members would have seen their benefits reduced and subject to a cap of £36,000 a year.

Stephen Soper, interim chief executive of the Pensions Regulator, said the agreement showed “we will not hesitate to pursue regulatory action to protect members’ benefits and PPF levy payers where we believe it is appropriate”.
He added: “The regulator has increasingly been required to engage its anti-avoidance powers to secure the retirement benefits of members and protect the PPF. This case demonstrates that the regulator’s anti-avoidance powers can be used effectively, even in highly complex international insolvency situations.”

Tony Lomas, joint administrator of Lehman Brothers International (Europe) and a partner at PricewaterhouseCoopers, said the conclusion of the case was “another milestone on the path to resolving the administration of [Lehman Brothers]”.

“The agreement benefits LBIE’s creditors by securing significant contributions to the cost of the settlement from other Lehman group companies, and alleviates concerns for pension scheme members about the provision of their pension benefits,” he said.
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