Bulk annuity deals drop among UK corporate pensions as fallout from 2022 “mini” budget continues

There was a clear divide between the actions of the 45 UK corporate pension funds and master trusts surveyed during the first quarter of 2024. While individual pension funds remain focused on de-risking and bulk insurance strategies, master trusts, with their longer investment horizons, concentrated on illiquid alternatives. 

The number of bulk annuity purchases tracked by MandateWire declined by half in the UK corporate space in Q1 2024 compared with Q4 2023’s 16 deals. 

The largest of the eight deals reported on in the quarter came from the Rexam Pension Plan. It announced it had completed a £1.4bn ($1.8bn) full buy-in with Rothesay, which covers 14,000 scheme members, including 9,790 pensioners and dependants and 4,330 deferred members. 

Having agreed to structure the insurance premium as a specified pool of assets owned by the scheme, the economics of the transaction were fixed in August 2023. 

At the other end of the scale, Just Group signed more modest buy-ins during the quarter. For instance, in March the £32mn ($40.4mn) Greenhous Group (2015) Retirement Benefits Scheme completed a £19mn ($24mn) deal with the specialist insurer. 

Following this latest transaction (the pension fund completed a previous transfer with Just back in 2014), the scheme will now proceed to full buyout and wind-up. 

Within the liability-driven investment space, MandateWire continued to see pension funds reporting on the fallout of the UK government’s September 2022 “mini” Budget. 

Forced sales 

The £12.9bn ($16.3bn) Tesco Pension Scheme, the £440.1mn ($555.8mn) University of Manchester Superannuation Scheme and the circa £3bn ($3.8bn) Imperial Tobacco Pension Fund all revealed details of the sales they had been forced to make in order to navigate the spiking gilt yields that followed the government’s announcement. 

The Tesco scheme completely liquidated its internal equity portfolio, while the Manchester and Imperial Tobacco funds sold corporate bond portfolios run by Legal & General Investment Management to meet capital calls. 

In Q1 2024 specifically though, LDI activity was muted, with just one pension fund registering interest. The £34bn ($42.9bn) Railways Pension Scheme’s manager Railpen said it was set to hire an LDI manager for certain smaller scheme sections that have become more mature. 

Chief investment officer Mads Gosvig explained that Railpen is “just starting” to get proposals for LDI allocations from these smaller sections and he expects more to come.

Railpen was also one of the few pension schemes within the UK corporate space interested in establishing exposures to assets further along the risk spectrum, revealing that it is now running internally managed long-short equity and commodity trading advisor strategies. Gosvig noted that the fund was keen to learn more from hedge funds, though he doesn’t intend to actually outsource assets to hedge fund managers. 

Master trusts 

Illiquid alternatives dominated discussions among the six master trusts MandateWire surveyed in Q1. 

In February, the Legal & General Mastertrust, with £20bn ($25.3bn) in defined contribution assets, outlined the private market plans it had lined up for 2024. 

Jesal Mistry, head of DC investment proposition and governance at L&G, told MandateWire the master trust has been developing a private market solution for the past 18 months that will account for an estimated 15 per cent of the master trust’s £15bn ($18.9bn) default solution and include “everything from private equity, to private credit, to real estate, to infrastructure”. 

He specifically pinpointed global real estate, global infrastructure and direct lending as areas for which the trust could seek external managers. 

In the same month, the £4bn ($5.1bn) Smart Pension’s head of investment proposition James Lawrence said the trust was holding beauty parades for a green infrastructure manager. Initially the trust will allocate between £250mn ($315.7mn) to £300mn ($378.8mn) to the appointed manager, but over time expects up to 10 per cent of its portfolio to be allocated to the mandate. 

The trust was also in conversation with managers of early and later stage venture capital opportunities, anticipating that a first allocation could be made to the asset class in 2025. 

Further down the line, the fund will turn its attention to property, specifically global property, which is “definitely an area that we want to be in”, according to Lawrence.