Barlow Lyde & Gilbert (BLG), LG and Norton Rose have won roles on the transfer of £3bn of pension liabilities from BMW’s pension scheme to Abbey Life Assurance Company.
BLG partner James Parker, who heads the firm’s life, annuity and pensions transactions practice, advised longstanding client Abbey Life, which will insure the longevity risks of around 60,000 members of the BMW (UK) Operations Pension Scheme.
The deal was structured in conjunction with pensions buyout company Paternoster, which could not purchase the scheme’s liabilities itself because it was capital-constrained.
Abbey has syndicated much of the longevity risk, which is associated with pensioners living longer than expected, to reinsurers Hannover Re, Partner Re and Pacific Re. Partner Re was advised by Norton Rose partner Maria Ross, while the other two reinsurers did not take separate legal advice.
Parker said the deal was struck to allow BMW to free up its balance sheet of its pension scheme’s liabilities.
“Final salary schemes are a headache for most large corporates in the UK and there are cases such as BA and BT where the pension scheme dwarves the size of the company,” he said. ”Businesses are looking at solutions to try to dampen the effect of ballooning pension liabilities on their balance sheets.”
Under the terms of the BMW agreement Abbey will agree with the pension scheme’s trustees’ assumptions on how long they believe the scheme’s members will live. If the pensioners live longer than anticipated, Abbey will have to put more assets into the scheme to meet the ongoing payments to those people.
While there are only a handful of reinsurers currently willing to take on pension scheme longevity risks, it is anticipated that around £15bn of pension risk will pass from corporates to financial institutions over the course of this year.
The trustees of the BMW pension scheme were advised by LG pensions head Robert Smith, while sponsoring employer BMW turned to partners Peter Ford and Dean Naumonwicz at Norton Rose.