Rentokil Initial secures pension scheme with massive buy-in agreement
Rentokil Initial and the trustee of the Rentokil Initial 2015 Pension Scheme announced an agreement for a bulk annuity insurance 'buy-in' for the scheme with Pension Insurance Corporation (PIC), a specialist insurer of defined benefit pension schemes, on Tuesday.
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The FTSE 100 company said the scheme had liabilities of £1.5bn.
It said the agreement secured the benefits of members, providing certainty and security for its 14,200 members - 7,500 pensioners and 6,700 deferred pensioners - as it was now fully hedged against longevity, interest rate and inflation risks.
The buy-in was secured in anticipation of a full 'buy-out' of the scheme, which was expected to be completed in 2020.
It would be one of the largest full buyouts ever undertaken in the UK, and would completely extinguish all future pension liabilities from the company's balance sheet and the associated accounting surplus, with no company cash payments being necessary.
On the completion of the buy-out, Rentokil Initial anticipated that there would be a small cash surplus which would be returned to the company.
As at 31 December 2018, the accounting surplus, which was £373.2m at 30 June, will be written down to the estimated cash surplus.
Through the buyout process, the company said members of the scheme would be provided with individual annuity policies with PIC, who would then be responsible for paying their benefits in full, providing security to members for their pension benefits now and in the future.
At the 2018 half-year 2018, PIC had insured 162,800 pension scheme members and had £27.9bn in financial investments, accumulated through the provision of tailored pension insurance buyouts and buy-ins to the trustees and sponsors of UK defined benefit pension schemes.
The company's defined contribution scheme, managed by Fidelity, remained unaffected.
“This transaction is a fantastic outcome for our pensioners, the company and our shareholders,” said Rentokil Initial chief executive officer Andy Ransom.
“We have supported the Scheme over many decades and over that period made significant cash contributions to remedy a deficit that has existed between the Scheme's assets and liabilities.”
Ransom said that funding, combined with “excellent” stewardship by the scheme's trustees and the “high quality” support of the advisers to the company and the trustee, had resulted in a “very positive” situation whereby the scheme could now be transferred to an A+ rated insurance company in PIC.
“This action de-risks the Scheme for the benefit of members and the company.
“While many other companies will have to continue investing heavily into their pension schemes for years to come, we can focus our future investments on delivering profitable growth.”
Chris Pearce, chairman of the trustee, described the move as “great news” for members.
“After many years of support from Rentokil Initial and careful management with Aon and Willis Towers Watson, we can now secure our members' benefits through PIC, a company which has strong financial credentials and a track record of excellent customer service.
“I want to thank our advisers, Aon, and our lawyers, Linklaters, for their help in arranging a strong agreement with PIC which will continue the excellent pensions our members enjoy.”
Mitul Magudia, head of business development at PIC, added that the company was “proud” to have secured the buy-in, which would guarantee the benefits of the 14,200 members of the pension scheme.
“This is PIC's largest transaction in 2018 and will be one of the largest full buyouts ever undertaken in the UK.
“We already have a full pipeline of new business transactions for 2019 and we expect to see many more transactions of similar size and nature in the future.”