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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.