L&G strikes £925m APP deal with its UK scheme

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Insurer Legal & General has completed a £925m assured payment policy transaction with its UK pension scheme, the Legal & General Group UK Pension and Assurance Fund.

The APP secures the cash flows to support benefit payments payable to about 2,000 retired and 2,800 deferred members of the scheme. 

Through the APP, L&G will be "selectively insuring against investment related risks such as changes in asset yields, interest rates and inflation", providing greater certainty on the timing and cost of a future buy-in or buyout. 

L&G describes an APP as a pre-agreed series of future payments, which may be fixed or inflation-linked and is held as a scheme asset. Trustees pay an up front premium for a full or partial APP and it is "similar in nature to a buy-in, with the crucial difference being that APPs do not vary with longevity risk or other demographic experience".

L&G claims this leads to a price difference to bulk annuities of around 15-20% for deferred members; the saving is lower for pensioners.