Transport authority seals first Local Government Pension Scheme buy-in

The West Midlands Integrated Transport Authority has completed the first Local Government Pension Scheme buy-in.

A buy-in is an insurance wrapper which provides payment of pensions for the insured section of a pension fund’s members. The fund continues to be managed as before but the transaction provides certainty over their costs.

It is distinct from a buy out, where the liabilities are fully transferred to an insurance company.

The buy-in model has been used in the private sector before but the £272m WMITA deal with Prudential is the first local authority involvement in the market.

The move is expected to pave the way for other funds to deal with legacy liabilities in the same manner.

Clifford Sims, partner at Squire Sanders, the law firm which advised the Authority and West Midlands Pensions Fund on the the transaction : “As in all local government contracts, the public sector procurement process, which requires great depth of transparency and objectivity, had to be followed.

“This transaction is the first time that these procedures have been entwined in the processes surrounding a bulk annuity transaction. Another feature was that the price was determined by an electronic auction process enabling the price to be settled in a matter of hours.”

Geik Drever, Director of Pensions at the West Midlands Pension Fund, said the transaction formed an important part of the WMITA Fund’s risk management strategy and had insured c50% of the Fund’s liabilities.

“It has protected the Fund and the sponsor against the volatility of investment markets and any unanticipated increases in life expectancy of the pensioners,” he added.

“Risk management is a very important part of Local Authority governance for both the Main Fund and the WMITA Fund, and as such this is a welcome outcome given the policies in place for the Funds as well as the Authority.”