Mercer was lead trustee advisor on the UK’s largest, and most complex,
defined benefit pension scheme risk transfer project which included the
£2.5 billion Legal & General Assurance Society (L&G) buy-out of part of
the TRW
Pension Scheme, the consultancy announced today. Mercer also acted as
strategic corporate adviser on the wider de-risking of TRW’s UK, US and
Canadian pension arrangements in a coordinated series of exercises.
Based in the US, with offices around the world, TRW is a global leader
in automotive safety with 2013 sales of $17.4 billion. The L&G buy-out
covers 22,000 UK pensioners in payment.
The UK transaction consolidates Mercer’s position as UK market leader in
advising on large-scale pension buy-outs. Mercer has been the lead
adviser (and in most cases was also the actuarial/investment adviser) on
all four buy-out transactions involving a premium over £1bn to have
taken place in the UK to date. The transactions are Thorn, £1.1bn, 2008;
T&N, £1.1bn, 2011; EMI, £1.5bn, 2013 and TRW, £2.5bn, 2014.
The full UK risk transfer project, which was designed to remove the
financial risk posed by TRW’s UK pension scheme, included a variety of
pension risk management exercises, which ran concurrently, including a
pension increase exchange (PIE), an enhanced transfer value exercise
(ETV), winding up lump sums, and equalization of guaranteed minimum
pensions (GMP) and a pensioner buy-out.
Mercer’s David Ellis, lead adviser on the transaction with L&G, said,
“Mercer’s market-leading annuity broking and investment advisory
capabilities ensured that the complex transaction was a success. The
innovations employed here work for plans of all sizes and shows what can
be achieved when companies and trustees use a combination of de-risking
strategies.”
The TRW Pension Scheme employed an investment strategy, implemented
following the 2008 downturn, which resulted in a gradual improvement in
the funding level, allowing TRW to embark on this multi-stage risk
transfer project.
An important aspect of the transaction was the price lock and related
transition of the assets from the pension scheme to L&G. The
leading-edge structure of the deal allowed the trustee to lock in to
pricing terms early in the project to provide certainty for all parties.
Assets were subsequently transitioned to reflect progress in a Pension
Increase Exchange exercise and to take advantage of market conditions.
“The innovative features of the transaction, negotiated and monitored by
Mercer, allowed the Trustee and all of its advisers to progress
efficiently the asset transition. The innovative features of the
transaction included a complex price tracking mechanism to control
pricing risks and the efficient use of the pension scheme’s assets”,
said Suthan Rajagopalan of Mercer, lead investment adviser for the
transaction.
Adrian Hartshorn, Senior Partner in Mercer’s Financial Strategy Group
and strategic advisor to TRW, added, “The advisory teams have undertaken
a range of other de-risking activities and it’s the combined impact of
these activities on the plan’s finances that is genuinely new. Prior to
the buy-out, Mercer worked with TRW to manage the risks posed by
deferred members – people who no longer pay into a plan but don’t yet
take their pension benefits. We conducted an enhanced transfer value
exercise covering 9,000 members. Additionally, members with small pots
were also offered a lump sum in lieu of further plan benefits and as
part of the PIE exercise, some guaranteed minimum pensions were
equalized and converted to non-GMPs. All in all, this was a complex
project, but the resulting cost-effective reduction in the scheme’s
liabilities has demonstrated the value of the work, which has taken most
of the year to complete.”
Mercer acted as strategic corporate adviser to TRW, lead bulk annuity
broker and as investment adviser in relation to the bulk transfer for
the Scheme’s trustee.
Advising the TRW pension scheme trustees on the bulk annuity purchase,
the Mercer team consisted of: David Ellis, Harry Harper and David Barker
with Suthan Rajagopalan and Matt Stephenson leading on the price
tracking and asset transition. Advising TRW Corporate, the Mercer team
included Adrian Hartshorn, Chris Hawes, John Martin, Simon Bramwell and
Matthew Demwell.
About Mercer
Mercer is a global leader in talent, health, retirement, and
investments. Mercer helps clients around the world advance the health,
wealth, and performance of their most vital asset – their people.
Mercer’s more than 20,000 employees are based in 42 countries and the
firm operates in over 130 countries. Mercer is a wholly owned subsidiary
of Marsh
& McLennan Companies (NYSE:MMC), a global team of professional
services companies offering clients advice and solutions in the areas of
risk, strategy, and human capital. With over 53,000 employees worldwide
and annual revenue exceeding $11 billion, Marsh & McLennan Companies is
also the parent company of Marsh,
a global leader in insurance broking and risk management; Guy
Carpenter, a global leader in providing risk and reinsurance
intermediary services; and Oliver
Wyman, a global leader in management consulting. For more
information, visit www.mercer.com.
Follow Mercer on Twitter @MercerInsights.
Copyright Business Wire 2014