After seeing its funding level drop to less than 70% during the 2008 financial crisis, the Trustee of the General Healthcare Group Pension & Life Assurance Plan (“the Plan”) has now secured a £150million insurance contract with Aviva to cover all 700 of its defined benefit members.
The deal took place on 16 March, during the height of the COVID-19 market turmoil. Despite this the transaction completed smoothly, well ahead of schedule and with scheme assets expected to cover all subsequent wind-up costs.
In 2008, the Trustee hired scheme secretariat firm Inside Pensions to provide a strong independent governance framework as well as appointing its MD, Rita Powell, as an independent trustee and Chair of the trustee board.
Alongside this, it appointed investment consultant Redington to work closely with the trustees and sponsor to establish and implement a long-term risk management framework and journey plan. In the last 10 years, this process has seen the scheme grow its asset value from circa £79m to over £150m, and plug a £27m deficit with just £5m in total deficit repair contributions required from the Sponsor over the period.
Alongside its funding challenges, the Plan also faced financial constraints from its sponsor, BMI Healthcare. This meant the Plan could not put undue pressure on corporate finances by requesting high recovery contributions. It was therefore crucial to all parties to implement the right investment strategy.
Rita Powell, Founder of Inside Pensions & Chair of Trustees of the GHG Pension Plan, commented: “We knew we needed a radical change in approach to overcome our difficulties, but as a small scheme with minimal resource we had to think differently to find the right solution. By focusing carefully on what really mattered and working closely with the sponsor and our investment and governance experts, the Trustee was able to come up with a long-term funding plan that worked for all parties.”
Mette Hansen, Director in Redington’s investment consulting practice, commented: “Our focus was to establish a clear framework that would put the trustees in full control and get all stakeholders behind a shared objective. For the Plan, this objective was to generate sufficient investment returns to minimise the pressure on the sponsor, but importantly in a highly risk-managed way that enabled the trustees to retain full control in all market conditions.
“Staying focussed on these collective aims – and the constraints involved – meant the Trustee and sponsor concentrated only on decisions that would make a genuine difference over time. This allowed them to achieve the desired outcome on limited budget and resource, for the benefit of all.”
Hansen added: “With the current market downturn putting those with funding challenges under increasing pressure, this case shows that there is a workable solution for everyone, regardless of sponsor strength, scheme size and budget, given the right long term funding plan and a strong governance framework.”
David Loasby, member-nominated trustee, said: “Redington introduced a simple dashboard capturing strategic objectives and constraints to drive decision-making. This allowed us to have real ownership and transparency as a trustee board, and to hold both ourselves and Redington accountable for outcomes. Even complex solutions and decisions became easy to deal with, as it was always clear why these were required from the perspective of member outcomes”.
Kevin Haimes, Group Finance Director at BMI says: “It was a real game changer for us to work collaboratively with the Trustee and Redington to formulate a clear, affordable and coherent plan for what we were trying to achieve and how it would be done. It made it easy for senior management at BMI to understand what was required and why, and to get fully behind the shared plan”.