JLT Employee Benefits (“JLT EB”) has completed its first buyout using its new ‘hybrid’ solution developed with Legal & General. As a result of the transaction, Open Trustees was able to insure the remaining liabilities in the Trigon Snacks Pension Scheme with Legal & General. Members’ Guaranteed Minimum Pension (GMP) underpins were insured alongside their residual defined contribution (DC) assets.
Historically, trustees and sponsors of similar hybrid schemes have encountered significant difficulties in insuring these arrangements. Small-to-medium sized hybrid schemes have struggled to find homes for relatively low quantities of residual DC assets (after insuring the GMP underpins), while larger schemes have run expensive and often convoluted broking processes involving two different insurers – for the GMP underpin and DC elements. In this instance, the innovation lies in the use of one single insurer for the entire scheme. With the DB and DC teams of Legal & General working closely together, this simplifies and integrates the process for trustees. Most importantly member experience is greatly improved.
This solution is designed for DC schemes (or sections of DC schemes) with GMP underpins, guaranteeing the members a certain level of income in retirement (in place of some of their earnings-related State benefits).
A change to the statutory definition of money purchase benefits in July 2014 effectively requires these to be treated as a defined benefit (DB) schemes, potentially increasing already high running costs. For example, it requires the appointment of a scheme actuary and completion of a triennial scheme funding valuation. A Pension Protection Fund (PPF) levy will also be payable and administration costs may be greater. There is also a risk that a funding deficit develops (or exists already), which the sponsor is required to make good.
As a result, many scheme sponsors and trustees are looking for de-risking opportunities and JLT EB’s new hybrid solution aims to provide a simple and cost-effective solution to them to buy out and wind up these arrangements.
Jonathan Hazlett, Managing Director, Open Trustees, said: “JLT EB’s solution allowed us to insure the remaining liabilities in the Trigon Snacks Pension Scheme, enabling us to wind this up. The process ran smoothly and we are pleased to have discharged our responsibilities to the scheme, ensuring the members’ pensions are safe.”
David Barratt, Senior Buyout Consultant, JLT Employee Benefits, said: “Thanks to our deep market knowledge and relationships with insurers, we were able to develop this solution to meet the needs of hybrid schemes. We expect the simplicity of this process to be attractive to many more small and large hybrid schemes.”
Julian Hobday, Director, Business Development, Legal & General, said: “We are delighted to have been chosen by Open Trustees to secure benefits for their members. Working together with JLT on this new solution for hybrid schemes, we were able to simultaneously buy out DB and DC benefits providing a competitive offering for both. There is significant interest from trustees of similar schemes and we expect to see many more looking to secure benefits in the future.”
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Notes to Editors
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About JLT Employee Benefits
JLT Employee Benefits is one of the UK's leading employee benefit providers offering a wide range of benefit and pension services, including administration, actuarial and pension consultancy, investment, Self Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSASs) administration, flexible benefits, healthcare, benefit communication and financial education.
JLT Employee Benefits employs over 2,200 professionals throughout the UK and in 2013 had revenues of £172m in UK & Ireland.
Pensions and employee benefits companies within the JLT Employee Benefits group of companies include: JLT Benefit Solutions Ltd, Profund Solutions Limited, JLT Wealth Management Limited, JLT Investment Management Limited and Independent Trustee Services Limited. JLT Employee Benefits is part of Jardine Lloyd Thompson Group plc.
About Jardine Lloyd Thompson Group plc
Jardine Lloyd Thompson is one of the world's largest providers of insurance and employee benefits related advice, brokerage and associated services. JLT's client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.
JLT is quoted on the London Stock Exchange and owns offices in 39 territories with some 9,000 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.