Section B of the Menzies Pension Fund completes an innovative £75m buy-out with Pension Insurance Corporation
13 Aug 2018
Section B of the Menzies Pension Fund (the “Scheme”), sponsored by Menzies Distribution Limited, has completed a buy-out with Pension Insurance Corporation plc (“PIC”).
Hymans Robertson advised the Trustees on the buy-out, with legal advice provided by Brodies LLP.
The buy-out follows the sectionalisation of the Menzies Pension Fund in May last year to align with the strategy for the John Menzies group, separating its Aviation and Distribution divisions. Following this exercise, the Trustees sought opportunities to lock down the risk associated with the Scheme.
The Scheme had insufficient assets to immediately buy-out all benefits in full. A bespoke structure was therefore agreed, whereby the Scheme will meet the shortfall to the cost of buy-out through a number of future fixed instalments. This allowed the Scheme to lock into the particularly attractive pricing seen in the first half of 2018, removing risk and securing a buy-out much earlier than the Trustees and sponsor thought was possible, and for less than the Scheme’s technical provisions.
The structure of the buy-out gives certainty over contribution requirements from the sponsor, an important factor when John Menzies plc entered into a conditional agreement to sell Menzies Distribution Limited to Endless LLP, announced on 26 July 2018.
Prof Ian Percy, CBE, Chairman of Trustee to the Scheme commented:
“The Trustees are delighted to have secured this attractive policy with PIC, locking down risk in the Scheme far earlier and for a lower cost than expected and significantly improving security for our members. Hymans Robertson identified an opportunity for the Scheme to benefit from attractive market pricing and developed a bespoke solution with PIC that met the objectives of both the Trustees and John Menzies plc. Hymans proactively led us through a well-run and innovative process, providing clear advice which allowed us to confidently make informed decisions at every stage.”
Giles Wilson, Chief Financial Officer at John Menzies plc commented:
“The buy-out with PIC locks down risk today at less than the current funding shortfall, removing exposure to an unpredictable and volatile deficit. The policy has given certainty to the Trustees regarding the level of support they require going forward from the sponsor. Hymans ran the process impressively ensuring the policy was in place ahead of the announcement of the conditional agreement to sell the business.”
Kieran Mistry, Hymans Robertson, lead advisor on the transaction added:
“By looking holistically at the objectives of both the Trustees and the sponsor we were able to develop the right solution that met everyone’s objectives.
"PIC’s flexibility and collaborative working style allowed us to secure members’ benefits for less than the Scheme’s funding reserves, removing exposure to uncertain future market pricing. We believe there are many other pension schemes which would benefit greatly from a similar buy-out structure to fully lock down their risks and secure their scheme much earlier than expected.”
Tristan Walker-Buckton, Senior Actuary at PIC commented:
“PIC is very pleased to have worked with the Trustees on this innovative deal. We helped structure a transaction around the client’s specific requirements which enabled the Scheme to achieve its derisking goals, providing the sponsor with increased financial certainty and scheme members with greater security.”