Merseyside strikes £200m bulk annuity deal with Aviva

The £200m deal was completed in June and is just the third time a Local Government Pension Scheme (LGPS) fund has secured member benefits with an insurer.

Merseyside has signed up to the Sustainability Principles Charter for bulk annuities, which was launched in January with Aviva among its founding signatories.

Arriva Merseyside is the biggest non-public sector employer participating in the £10.4bn Merseyside Pension Fund.

Peter Wallach, director of pensions at Wirral Borough Council, the administering authority for the Merseyside scheme, said: “This was a complicated project, and we thank Mercer and Eversheds Sutherland for the clarity, expertise and tenacity they brought in assisting us through the process to ensure compliance with public procurement legislation, and to obtain competitive pricing along with good contractual terms.”

Ian Kirk, group pensions manager at Arriva Group, said the completion of the deal was “great news” for scheme members and supported the company’s aims to “minimise risk and protect member benefits”.

Mercer was the lead adviser on the transaction, and Andrew Pugh, risk transfer principal, highlighted the use of Aviva’s “customised broking and procurement process” to maximise engagement from insurers while also meeting sustainability objectives.

The consultancy giant has also advised on two previous LGPS buy-in transactions. In 2020, the North East Scotland Pension Fund insured the benefits of 1,360 former FirstGroup employees for £230m in a deal with Rothesay Life.

In 2012, Mercer also helped facilitate a £270m buy-in for the West Midlands Integrated Transport Authority with Prudential.

Private sector employers with staff in the LGPS have previously faced barriers to exiting the scheme, particularly due to funding shortfalls. However, with the system’s funding level having improved substantially over the past two years, options are growing for employers.

In an update for employers last September, XPS Group’s Gareth Lewis, a senior consultant, said LGPS exit funding levels had increased from 80% at the end of March 2022 to more than 120% at the end of August 2023.

A record year for buy-ins

The announcement comes as data from Hymans Robertson shows that there were a record number of buy-ins completed in the first half of 2024.

The consultancy reported that 134 such deals were completed in the first six months of the year worth a combined £15.3bn, compared with 96 in the same period in 2023.

Hymans predicted more than 250 buy-ins would be completed this year, which would also be a record for a calendar year. It predicted a total of £40bn of new bulk annuity premiums for the year – down significantly on 2023’s total.

James Mullins, partner and head of risk transfer at Hymans Robertson, said it had been a “fascinating year” for bulk annuities so far.

“The insurers have demonstrated that they can handle record buy-in transaction numbers,” he said. “Helped by the new entrants, I expect it won’t be long before we see 300 buy-ins in a single calendar year.”

However, with most of these transactions being whole scheme buy-ins – marking a significant step towards full buyout – Mullins warned that schemes could face an “administration bottleneck”.

He urged trustees to “carefully test their chosen insurance company’s capacity for ongoing administration and the transition to buyout”.

Further reading

Sustainability comes to the bulk annuity sector (30 January 2024)

Bulk annuity supply to increase in 2024: Hymans (2 February 2024)

Market for large bulk annuity deals slowed in H1, data shows (1 August 2024)