TI in £250 million bulk annuity buy-in with Paternoster

Engineering firm TI has insured the benefits of 4,000 members belonging to its group pension scheme in a £250 million bulk annuity transaction with Paternoster.

The buy-in has resulted in the transfer of around 20% of the plan’s assets to Paternoster, who in return will make regular payments into the scheme.

Members of the pension, sponsored by Smith Group, will see no change in the amount of their benefits or the way in which they are paid as a result of the investment. This investment follows the announcement in April of a similar £250 million annuity purchase by the TI group pension scheme with Legal & General.

Mike Abrams, director of UK Pensions, said: “The trustee has chosen to purchase annuities to match a portion of the scheme’s liabilities, the aim being to reduce the effect of changing investment and mortality conditions on the scheme’s funding position. This will give greater security and stability in the funding of all members’ benefits.”

Watson Wyatt, however, believe the deal, which is the seventh successive arrangement of £100 million or more, underlines the security questions facing pension schemes in the wake of high levels of volatility in the financial markets.

Steven Dicker, a senior consultant at Watson Wyatt, said: “If an insurer were to fail following a buy-in, the scheme would still be responsible for paying benefits and the sponsor could have to make up any shortfall. This is unlikely but the turbulence engulfing the financial services sector last week underlines that the possibility cannot simply be ignored. Splitting the business between more than one insurer, as Smiths/TI has done, is one way to reduce the risk, so their decision may not simply reflect the fact that the cheapest insurer will vary according to the time of the transaction or the benefits covered.”