LEGAL & GENERAL

Question 1

What is a buy-in?

Answer 1

Where a scheme enters into an agreement with an insurer, whereby the insurer assumes a portion of the scheme’s liabilities

The trustees of the scheme pay a premium to the insurer in exchange for the insurer guaranteeing to pay all future payments due from the scheme to its members

Question 2

What is a buy-out?

Answer 2

A complete transfer of the pension scheme’s obligations to an insurer, providing a clean break for the scheme, transferring assets and liabilities to the insurer

Question 3

Why would a pension scheme consider a buy-in or buy-out?

Answer 3

Removes the risks faced by the pension scheme, such as:

1) Investment risk - the risk that assets perform worse than expected;

2) Market risk - the risk that markets move in a way that result in higher future benefits being promised; and

3) Longevity risk - the risk that members live longer than expected

Question 4

Why would insurers consider a buy-in or buy-out?

Answer 4

Two main reasons:

1) Diversify portfolio

• Allows insurers to extend their business lines and deploy capital in different markets and sectors, potentially enhancing returns and spreading risk

2) Bolster brand reputation

• Allows insurers to build long-term relationships with schemes and their members, fostering brand reputation and customer loyalty

Question 5

What deals have Slaughter and May advised Legal & General on?

Answer 5

Last year, Slaughter and May advised Legal & General on one of the UK’s largest buy-ins in Boots Pension Scheme at £4.8bn securing the benefits of all of their 53,000 members.

This is another string of big-ticket buy-ins and buy-outs that Slaughter and May have advised on, including:

• Walmart - £3.8bn buy-in and subsequent buy-out of Asda Group Pension Scheme; and
• Intact and RSA Group - £6.5bn buy-in of two RSA Group Pension schemes