(June 9, 2014) – Oil giant Total has insured £1.6 billion of liabilities for its UK pension scheme with Pension Insurance Corporation (PIC), in the second-largest transaction of its kind in the UK.
Ian McCombie, chairman of trustees for the Total UK Pension Plan, said the deal was “a significant risk reduction step” for the £2.6 billion defined benefit scheme, “reducing funding volatility and providing additional protection for members’ benefits”.
LCP, which advised Total and the scheme’s trustees on the buy-in deal, said more large-scale derisking deals of more than £1 billion in size were likely this year. Already this year UK schemes have insured more than £5 billion of liabilities.
Clive Wellsteed, partner at LCP and head of the company’s buy-out practice, said 2014 had the potential for “over £10 billion in bulk annuity business which would be the largest yearly total yet”.
The buy-in transaction saw PIC insure more than half of the total £2.6 billion of liabilities of the Total UK Pension Plan, covering 7,000 individuals’ benefits. Total is the fifth-largest listed oil company in the world.
Emma Watkins, partner at LCP and lead adviser of the transaction, said the size of the deal “required the implementation of an innovative structure” implemented by PIC.
While she could not give specific details, Watkins said the scheme’s trustees had paid for “an additional structure which built on the already very high levels of security associated with the insurance regime, reflecting the large size of the transaction”.
“This involved identifying and maintaining a pool of suitable matching assets that could be accessed rapidly and would be used to secure further the trustees’ rights under [the] insurance policy,” Watkins added.
Meanwhile, UK financial regulator the Financial Conduct Authority (FCA) has confirmed that bulk annuity deals such as this one will come within the scope of its review of retirement income options.
The FCA originally set out plans to review this area of financial services—which is dominated by individual annuity business—last year, but has revised the terms of its review following wide-ranging changes to individual pensions rules announced by Chancellor George Osborne in April.
A spokesperson for the regulator confirmed that all types of retirement income—including bulk annuity deals—will be included in the review.
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