Case study: The PACE Pension Scheme

Background:

• the Scheme has c.£12 billion of liabilities and c.90,000 members and is well-funded with limited growth asset exposure and had hedged out nearly all interest rate/inflation risk, leaving longevity as the key outstanding risk
• the Scheme put in place a strong governance process with a Joint Working Group ('JWG') structure established so that the sponsor and Trustee were aligned when approaching the market. This enabled frank dialogue, robust testing and clarity on risk and pricing tolerances
• the existing relationship between PIC and the JWG following the £425 million pensioner buy-in of the Somerfield Pension Scheme, enabled a collaborative approach to get the best outcome for the Scheme and its members

Goal:

• given the size of the Scheme one of the key objectives for the JWG was to partner with an insurer who could provide a structure that would facilitate phased buy-ins to fit around their de-risking journey. Enabling future transactions to be completed in an efficient cost-effective manner and allowing the JWG to react when favourable market conditions arise

Delivering:

• the initial transaction with PIC in January 2020 laid the groundwork and structure for repeat transactions. This was achieved via an umbrella contract.
• PIC was able to offer price certainty through the significant market volatility due to the onset of Covid-19 via an asset lock
• the structure enabled the JWG to transact an additional buy-in in March 2020 and take advantage of the favourable movement in credit spreads at the time. Transacting in a matter of weeks from selection compared to a typical six to eight week process

Outcome:

• The JWG were able to react quickly to favourable market conditions and complete multiple transactions at attractive pricing