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Pensions insurance legal advice

It is becoming increasingly common for defined benefit pension trustees and their sponsoring employers to seek to de-risk their schemes. One way of doing this is to insure them by entering into bulk purchase annuity ‘buy-in’ contracts, often as a first step towards buying them out altogether. These are usually transactions that involve a significant part (or all) of the assets of the pension scheme concerned, and they are largely irreversible.

It is vital for all parties that these transactions are properly documented, with risks for both trustees and insurers appropriately covered off. They also need to be executed professionally and in a way that is sensitive to the timescales dictated by price lock-in periods, dealing dates and trustees’ decision making processes.

Without legal advice delivered by lawyers who are experts in the field, trustees and insurers are exposing themselves to the risk that a contract does not offer them appropriate protection. Also if lawyers are involved who are unfamiliar with market standard terms and/or unable to work to commercially driven timescales, there is a risk of target dealing dates being missed with the result that transactions need to be re-priced and/or adviser fees incurred that are higher than necessary.

Trustees and insurers need legal advisers who understand the market, are commercially robust and can deliver high quality work within tight timescales.

What can we do for you?

Eversheds Sutherland's pensions insurance team advises on all aspects of buy-in and buy-out insurance policies, including the below.

Contract terms Drafting and review of benefit specifications All risks cover Premium payment schedules Quotations and other documents

Contract terms

Contract terms

  • we are familiar with the standard terms of all the insurers in this market, and we drafted some of them
  • our experience acting for both insurers and trustees means that we understand where the other side is coming from in a negotiation, meaning that the parties don’t get stuck on non-points, and practical solutions can be found quickly where there are genuine areas of disagreement

Drafting and review of benefit specifications

Drafting and review of benefit specifications

  • we are happy either to draft benefit specifications from scratch or advise on specifications drafted by consultants
  • we are used to liaising between trustees, consultants and administrators in order to finalise benefit specifications

All risks cover

All risks cover

  • we have drafted and negotiated the additional contract terms that are needed where trustees are taking out ‘all risks’ cover
  • we have also undertaken due diligence for insurers considering whether to offer ‘all risks’ cover to trustees

Premium payment schedules

Premium payment schedules

  • we are able to draw on the strength of our class leading financial services team advise insurers and trustees on wording for premium payment schedules, including where gilts locks and/or deferred premium structures are being used

Quotations and other documents

Quotations and other documents

  • we advise as required on the legal aspects of the full suite of documents that are used in a de-risking transaction, including quotation documents, confidentiality agreements and exclusivity agreements.

Our experience

What makes the Eversheds Sutherland pensions insurance team stand out is our strength and depth of experience. We act for every type of pension client, including trustees of occupational pension schemes of all sizes, employers and insurance companies, and we have written standard buy-in/buy-out terms for some insurers. We have unique experience in advising both trustees and insurers, which means that in negotiations we are familiar with the positions of both parties and the common sticking points, and we understand the areas of potential compromise.

We have advised a range of trustees and corporate sponsors on bulk annuity transactions, including:

  • two transactions with Pension Insurance Corporation in 2017, each worth £40-50m
  • a transaction with Just in 2017, worth £150m
  • several other transactions for trustees and employers since Solvency II came into force
  • the £400m buy-in of the Wiggins Teape Pension Scheme (the first scheme to transact with Scottish Widows) in November 2015
  • the £300m buy-in of a Siemens-sponsored scheme transacted with Pension Insurance Corporation as the front line insurer, with a reinsurance back to Siemens’s captive reinsurer, concluded in December 2015
  • the £3bn synthetic buy-in, including derivative contracts and an insurance policy, for the Airways Pension Scheme, with the addition of later tranches, over the period 2008-2012
  • the collateralised buy-in of the Cable & Wireless Worldwide Retirement Plan with Prudential worth over £1bn, with additional later tranches, over the period 2011-2013
  • numerous smaller transactions with all the main insurers in the bulk annuity market

Recent examples of our work for insurers include:

  • the £1.1bn all-risks buy-out of the Vickers Group Pension Scheme in 2016
  • a number of tranches of the multi-billion buy-in of the ICI Pension Fund
  • an £800m longevity swap insurance, completed in 2017
  • a £560m buy-in, completed in June 2016
  • concurrently, a £97m and £128m all-risks buy-out of a staff and executive scheme respectively, completed in June 2017
  • a number of smaller buy-ins ranging from £1m to £110m, completed between April and July 2017
  • advising Just on 20-25 bulk annuity transactions, and being involved on numerous others via a secondment to the Just DB team

Pathway - streamlined bulk purchase annuity service

In conjunction with leading benefit consultancy Aon Hewitt, we have developed a set of pre-negotiated contractual terms as part of a streamlined but comprehensive bulk purchase annuity offering, which includes full provider due diligence. This offers fixed fees and a tightly defined process to control costs.

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