Aircraft service company SR Technics UK’s pension scheme has secured benefits of around 20 per cent above what members would have got through the Pension Protection Fund, by investing in matched assets and improving its data.
Schemes that have worked to improve their member records and buy assets that are better matched to their liabilities are more attractive to insurers and can improve their chances of getting a fast and good-value buyout for members.
Colin Marsh, chairman of trustees at the aircraft service company’s scheme, and a director at HR Trustees, said the scheme moved its investments into a portfolio of interest rate and inflation swaps to raise its appeal to insurers.
“As the assets were matched as best we could, then we were seeking to deal with it as quickly as [possible],” he added. “We went through a data cleanse exercise to try to get the data in a reasonable form so we could get a good price.”
The scheme handed approximately £200m in assets to buyout provider Pension Insurance Corporation in return for covering 2,500 members’ liabilities, according to those involved in the deal.
Stuart Faloon, principal at consultancy Mercer, who worked on the deal, said the scheme worked hard to tie down exactly how the post-transaction uplifts would be calculated for certain portions of the membership, rather than leaving it to the insurer after the deal.
“Better to have all that cleared out upfront so there is absolutely no dispute once the deal has been announced,” he added.
The scheme wound up back in 2010 following an apportionment arrangement in which SR Technics UK passed its pension liabilities to a shell company, according to the pension plan. This was accepted by the scheme in return for a £3.4m contribution to improve the funding position.
Marsh said this was a “fairly arduous” process. “The trustees want to secure as much as they can for members, knowing that the finances aren’t going to be able to secure full benefits,” he added.
The shell company went insolvent, meaning the scheme entered the PPF assessment period, which it then exited in May 2012 as it was sufficiently funded to pay benefits above what the organisation offers.
“We are targeting on average across the membership something in the order of 20 per cent above PPF [levels],” said Jay Shah, co-head of business origination at PIC.
The uplift will be shared across members according to how much the PPF cutback would have hurt their entitlements.
Shah added: “Deferred members who had lost all their indexation and had also had their pensions capped to 90 per cent would get a larger proportion of that pot, relative to older pensioners who were receiving full benefits with some level of indexation.
