The Vodafone Group Pension Scheme agreed a buy-in for part of the pensioner liabilities in its £2.6bn Vodafone section, continuing a trend of schemes taking advantage of opportunities to secure deals during the pandemic. 

 

Buy-in and buyout volumes were estimated to have reached around £26.3bn in 2020, one of the highest volumes transacted, with schemes such as the Merchant Navy Officers Pension Fund, Maersk, Allied Irish Bank and the Coop agreeing buy-ins, though this figure was still considerably lower than 2019’s record of £43.8bn. 

 

Vodafone previously made the news when it moved at least £1.3bn of defined contribution assets to master trust LifeSight in early 2020, but it seems the company is also intent on consolidation when it comes to its defined benefit schemes. 

 

The firm’s DB scheme contains two sections, Vodafone and Cable and Wireless Worldwide. It was the Vodafone section, with a funding level that had in March 2020 dropped to 87% from 94% in 2019 – though this has since returned to the higher level – which was subject of a buy-in with an undisclosed insurer. 

 

The summary funding statement only reveals that “the Company made a payment of £80.06m million into the Vodafone Section in September 2020 which was used to purchase an insurance policy supporting part of the pensioner liabilities”. 

 

The CWW section was funded to 103% in late March 2020, the middle of the Covid-19 crash, which is only slightly lower than a year earlier, when a full valuation was carried out, but it is unclear whether it targets self-sufficiency or buyout. 

 

 

The bulk annuity market was thriving last year, thanks to sometimes very attractive pricing created by market movements during the Covid pandemic. It is likely that more pension assets and liabilities will be transacted as companies seek to offload schemes for which governance requirements are being continuously tightened, including wide-ranging criminal sanctions powers contained in the new Pension Schemes Act. 

 

Tiziana Perrella, a trustee at Dalriada Trustees, said there is still a lot of activity in the smaller scheme space in particular. 

 

"I have two sub £20m schemes for which a transaction is expected to proceed in the next couple of months, with two different major insurers,” she said, with “very good pricing on offer” and “no issue with getting quotes”. 

 

Perrella expects demand to continue to increase. “The new funding regime is putting more pressure on trustees and sponsors explicitly agreeing their endgame plans, and an endgame of buyout makes even more sense for smaller schemes given the disproportionate cost and governance burden,” she noted. 

 

There is also a possibility that more PPF+ deals will be signed this year and next as more scheme sponsors could become insolvent once the government withdraws its Covid support schemes. Insurance firms may in future compete with commercial DB consolidators in this space, as employers and trustees could prefer offering a higher level of benefits for their members. 

 

Perrella said that some of the overall demand for derisking will be absorbed by the various consolidator vehicles available, both off and on balance sheet, but believes that bulk annuities will remain the “gold standard”.  

 

However, she stressed the need for trustees “to be clear about the advisory process to be followed to make a decision on which vehicle may be suited to a scheme’s specific circumstances".