APL SUMMER CONFERENCE. 20 June 2008, Landmark Hotel, London. MANAGING PENSION LIABILITIES: THE BIGGER PICTURE Legal and practical issues

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1 ASSOCIATION OF PENSION LAWYERS APL SUMMER CONFERENCE 2 June 28, Lndmrk Hotel, London MANAGING PENSION LIABILITIES: THE BIGGER PICTURE Legl nd prcticl issues Jne Dle, Allen & Overy LLP Contents 1. THE CONTEXT Wht is "libility buy-out"? Why do it? 3 2. THE EMERGING LIABILITY BUY-OUT MARKET 4 2.I Experience to dte The different trnsction models Model 1. Non-insurnce buy-out (Pensions Corportion, Citigroup) Model 2. Totl insurnce buy-out: chnge of principl employer (Pternoster) Model 3. Insurnce buy-out vi bulk trnsfer (Rothesy Life) How will the mrket develop? The Telent cse nd the Government's response 6 3. LEGAL AND PRACTICAL ISSUES ON BUY-OUT Issues for compnies Issues for providers Issues for trustees 8 4. OTHER LIABILITY MANAGEMENT SOLUTIONS Is buy-out the only option? Prtil buy-out "Buy-in" Benefit design nd member choice Contingent ssets Tckling the longevity risk IN CONCLUSION 11 Appendix 1 13 Exmples of buy-out dels 13 EP

2 1. THE CONTEXT 1.1 Wht is "libility buy-out"? This term hs been used s ctch-ll to cover vrious structures by which compnies cn offlod their defined benefit pension libilities. Normlly, we think of this being through n insurnce provider by buying out some or ll of the pension scheme's libilities by the purchse of bulk nnuity, which my be fcilitted by trnsferring the pension scheme sponsor itself, or by wy of bulk trnsfer to new scheme. 1.2 Why do it? DB pension libilities hve become burden tht over the lst few yers hs become incresingly hrd to ber for compnies. There re number of resons for this. They include: () (b) Legl/complince burden. DB pension libilities hve become burden tht over the lst few yers hs become incresingly hrd to ber for compnies. Why? Well, the Pensions Act 24 introduced stricter funding rules nd in generl, DB pension schemes hve become subject to significntly incresed lw nd regultion over the lst few yers. This increses the complince burden for the compny nd thinking purely in prcticl terms, this mens more mn hours (including mngement time) re being tken up with the pensions side of the business. This lso t time when mrkets hve not performed well. Voltility. In ddition, DB pension libilities re lso voltile by nture, s they re dependnt on fctors which re outside the control of the compny. Investment risk, for exmple. As we know, the investment power is held by trustees under sttute. But there re lso other voltile risks such s improvements in longevity, which gin men increses in pension costs in wy tht cnnot be ccurtely predicted. The chnges in ccounting rules (the introduction of FRS17/IAS19) hve lso incresed voltility in reltion to pension costs. The new ccounting stndrds vlue pension libilities using the yield on long-dted AA corporte bonds, so the deficit recorded in the blnce sheet is exposed to chnges in this yield. Life expectncy hs lso incresed t much fster rte thn ws expected, nd there is considerble uncertinty bout the shpe of its future progression. As vlutions strt reflecting updted mortlity ssumptions so scheme libilities hve incresed significntly. The Pensions Regultor hs wrned tht schemes re still significntly underestimting member life expectncy. FRS17 vlutions, which tend to be less conservtive thn scheme vlutions, cn be even further behind. (c) (d) Business frt. Compnies my lso be motivted by business fit to offlod their pension rrngements in prticulr where they hve very mture scheme, lmost certinly closed to new entrnts, which is out of line with remunertion policies for the current workforce. Blnce sheet. In ddition, the fct tht ccounting rules require the deficit to be recorded on the compny's blnce sheet mens tht this goes stright to the compny's vlue. So significnt pension libilities cn impct M&A (the slebility of compnies), credit-rting, borrowing cpcity, nd lso scope for delivering vlue to shreholders. This is quite well illustrted by the fct tht the mrkets (shre prices) hve tended to respond positively to nnouncements of lrge buy-out dels. 3

3 In ddition, the provider seeking to enter the buy-out is driven by the potentil for relising profit over time from pension scheme ssets, through sophisticted progrmmes of de-risking nd libility mngement. 2. THE EMERGING LIABILITY BUY-OUT MARKET 2.1 Experience to dte Well s everyone will be wre from the pensions nd finncil press, mss of new buy-out providers hve entered the mrket for offloding DB pension libilities. A few yers bck, we hd only the two big insurers Prudentil nd L&G. Now we hve Pternoster, Goldmn Schs, Synesis, Pensions Corportion, nd number of others, some well-estblished, others still witing for their first del. So wht hs this incresed competition ment? Well, certinly there's been one firly obvious effect: buy-out prices hve come down considerbly over the lst few months, nd re probbly s competitive s they've ever been. But buy-out is still not chep, nd is thought to be typiclly round 11% or more of the 1AS19 libility vlue for pensioners. Certinly the number nd size of buy-out dels hs been picking up in 28, fter firly slow strt. And we cn expect more to follow. See the Appendix to this pper for detils of some of the dels nnounced to dte. There re vrious structures whereby provider ssumes compny's DB pension libilities nd the process is often run through n uction, under which number of providers enter competitive bid in reltion to pension scheme. 2.2 The different trnsction models There re three min types of buy-out trnsction structure: Model 1. Non-insurnce buy-out (e.g. Pensions Corportion, Citigroup) Model 2. Totl insurnce buy-out: chnge of principl employer (e.g. Pternoster) Model 3. Totl insurnce buy-out: bulk trnsfer then buy-out (e.g. Rothesy Life) 23 Model 1. Non-insurnce buy-out (Pensions Corportion, Citigroup) Generlly referred to s "non-insurnce buy-out", this is where the provider compny cquires the pension scheme's sponsoring compny (for the pproprite price) nd then sells off the business of tht compny, so tht it is left with just the pension scheme. This is kin to privte equity trnsction. After running the pension scheme for while (nd probbly pursuing de-risking progrmme), the scheme is wound up, individul nnuities purchsed in respect of members nd ny surplus returned to the provider. (This route needs to be hndled prticulrly crefully in light of comments mde by the Pensions Regultor following the Telent trnsction in 27). 2.4 Model 2. Totl insurnce buy-out: chnge of principl employer (Pternoster) The provider replces the sponsoring compny of the pension scheme in ccordnce with the relevnt pension scheme rules. Other prticipting employers withdrw from the scheme, possibly Leving side prtil buy-out nd buy-in. 4

4 triggering the pyment of debts to the scheme (their shre of the scheme's deficit). The provider then. de-risks before proceeding to wind up of the scheme. 2.5 Model 3. Insurnce buy-out vi bulk trnsfer (Rothesy Life) The provider sets up new pension scheme, with its own blnce of powers. There is then bulk trnsfer of ll the relevnt libilities from the compny's pension scheme into the provider's pension scheme. This is immeditely followed by the purchse of bulk nnuity contrct by the new pension scheme, which then implements de-risking before proceeding to wind up. There is nothing essentilly new in this structure, though there re couple of legl issues to note. This structure relies on GN16 trnsfer bulk trnsfer without member consent. So you need to ensure tht the test in reg.i2(2)(b)(i) Occuptionl Pension Schemes (Preservtion of Benefit) Regultions 1991 is mete. There re essentilly two spects to this. (1) First, the trnsfer needs to be consequence of finncil trnsction between the employers. Essentilly, there hs to be n exchnge of obligtions t the employer level. (The legl documenttion my need mending to ensure tht this is clerly expressed.) (ii) Secondly, the new pension scheme hs to be n "occuptionl pension scheme"3 - nd using the definition in section 1 Pension Schemes Act 1993, this mens pension scheme which is estblished "or the purpose of providing benefits to, or in respect of people with service in employments of description...". This hs been tken to men tht the receiving scheme needs to hve ctive members nd not just for notionl period. 2.6 How will the mrket develop? Cn the new providers survive? If the credit crunch continues, this could impct on the buyout mrket. For exmple, insurers my not be ble to mintin their finncil bcking if they don't get sufficient dels under their belts, or my not be ble to ccess dditionl cpitl to write further business when they need it. And without rmncil bcking, insurers will struggle to survive. We cn expect niches to develop, nd consolidtion of the mrket seems likely. Will prices come down? This lso seems likely, nd this my even be strting. On the other hnd, continued credit crunch could lso help to keep buyout prices down (this is becuse providers cn use the higher yields vilble on investment grde corporte bonds nd other ssets to reduce their prices, wheres pension schemes tend to set their funding ssumptions by reference to the vlue of government bonds, which hve not reduced s result of the credit crunch). At the sme time, though, other fctors my mke buy-out more ffordble over time. The gp between nnuity purchse cost nd ccounting cost hs strted to nrrow, so this could mke buy-out more ffordble option for some. This hs lredy become prticulrly noticeble in reltion to pensioner libilities, nd hs led to n increse in prtil buy-out dels (under which schemes buyout their pensioner libilities only) s result. Reg.I2(2X13)(i): "... the trnsferring scheme nd the receiving scheme pply to employment with different employers, the member concerned is one of group in respect of whom trnsfers re being mde from the trnsferring scheme to the receiving scheme, nd.. the trnsfer is consequence of finncil trnsction between the employer?. See Reg.1(3), nd section 1 Pension Schemes Act

5 2.7 The Telent cse nd the Government's response One of the best-known buy-out cses ws the Telent cse. In September 27, Pensions Corportion nnounced its 4m recommended offer for Telent. The del involved 2.5bn pension scheme with potentil ccess to n escrow ccount of round c. 49m. Pensions Corportion wnted to ppoint its own hnd-picked specilist trustees to deliver sophisticted investment strtegy, nd so help deliver surplus (nd so profit) over time. The trustees were concerned nd pproched the Pensions Regultor, who then stepped in to ppoint independent trustees. There hve been considerble knock-on effects from the Telent decision. It hs led to debtes in Prliment bout the future of the buy-out mrket both insurnce buy-outs nd non-insurnce buyouts (like the Pensions Corportion model). Where this hs tken us is yet more chnges in the legisltion nmely the chnges to the so-clled "morl hzrd" provisions of the Pensions Act 24 which were nnounced on 14 April 28 These chnges will extend the morl hzrd powers. It is proposed tht contribution notices will now cover series of connected cts ( course of conduct) s well s single ct or omission nd the exception for cts "in good fith" will go. Insted, the focus will be on the effect of the ct or omission: specificlly, is this mterilly detrimentl to the scheme's bility to py benefits? There will lso be new sttutory defence vilble, if the prty cn show tht they could not resonbly hve foreseen the mteril detriment. The now rules will lso chnge the "threshold" test for the purposes of deciding which compnies in group it cn pursue for n FSD. Does this men the end for non-insurnce buy-out (the "finncil buyer" model)? Not necessrily. The Government hs mde some comforting noises bout the impct on buy-out, provided tht member security is protected. However, it is cler tht you would need to tke prticulr cre in cses of trnsctions where: The employer or pension scheme is moving overses. A scheme is being run for profit without tking sufficient ccount of members' interests. The reltionship between compny nd scheme is severed nd the scheme doesn't get "pproprite mitigtion" Assets nd libilities re trnsferred to nother scheme which doesn't hve dequte support from n employer or insurer. In ddition, there re some lessons tht cn be drwn from the Telent cse, for providers nd compnies Address members' interests in prticulr if there is risk tht the security of their benefits might be compromised by the proposed structure. If the structure cn be shown to look fter the members' interests, the trustees (nd the Regultor) re more likely to be ble to work with you. Bewre of ggressive investment strtegy if this compromises member security. Ensure tht the Pensions Regultor understnds the business model from the outset, not just once suspicion hs grown. 6

6 If conflict is likely to rise, cknowledge nd ddress this. Tke specil cre with bid documents, structure ppers nd public comment they will be red by trustees s well s compnies nd need to be crefully worded. 3. LEGAL AND PRACTICAL ISSUES ON BUY-OUT 3.1 Issues for compnies () Risk For clen brek, the compny will wnt the provider to tke on ll risk, including dt nd benefit risk (i.e. risk tht pension records re incomplete/wrong, or tht benefits re not being pid correctly). The legl documenttion nd terms will need checking crefully to ensure tht it is cler where such risks will fll, nd wht, if nything, is retined by the compny. Bewre of hidden costs nd conditions, nd mke sure tht you understnd the commercil position. Depending on the provider, this my impct on price. (b) Dedline It is often importnt for the compny to be ble to get the del done quickly. If this is rel objective for the compny, it will need to ssure itself tht the product is trustee-redy, nd tht the provider hs the resources nd commitment to deliver, prticulrly if it is big project. (c) TUPE A trnsfer of dministrtive stff my be triggered under TOPE s consequence pf the buyout del. This could involve in-house dministrtive stff, or stff t n externl dministrtor. Who bers the cost if there re redundncies? (d) Tx If there is surplus in the scheme, it my be tht some sort of pyment will be mde to the compny by the buy-out provider. You will need to ensure tht this is nlysed from tx. perspective to ensure tht there re no unexpected tx chrges. (e) Reputtion 3.2 Issues for providers As with trustees nd providers, getting it right is of high importnce. Compnies will not wnt there to be ny dverse impct on industril reltions, s the members being bought out my still be employees. And if there re problems with the stying power of the buy-out provider (for exmple, the provider folds within few months or yers), mny compnies will feel n obligtion to step in even where there is no legl requirement to do so. () Product development At stge one, it's worth investing time nd cre in product development before you go to mrket. Is your product wtertight? Does it work both leglly nd prcticlly? Cn it be defended if it is leglly chllenged? Especilly with some of the more sophisticted structures, the implictions of hving to unrvel it ll if you get it wrong do not ber thinking 7

7 bout. As provider, hve you tested ll the ngles so tht you re redy for ny difficult questions tht my come up t your pitch or in the negotitions? And in fct reputtion getting it right is one issue where the interests of ll of the prties relly re ligned. Providers need to get it right first time becuse they wnt the dels to keep coming in order to keep their foothold in the mrket. You lso need to think bout how you differentite yourself, in wht is very competitive mrket especilly if you're in n uction sitution. Price isn't necessrily the only wy of doing this. (b) Being user-friendly Being user-friendly is lso importnt. In other words, is your product redy to use? You need to think hed, nd nticipte ny questions or issues before they rise. You lso need to know your mrket. It my be the compny tht pys but you lso need to sell the product to the trustees. So perhps most importnt of ll is your product trustee-redy? (c) Legl issues In terms of the legl issues, it's question of recognising wht's relly importnt. For exmple, providers re probbly going to hve to tke on dt risk s prt of the del (i.e. the risk tht pension records re missing or wrong nd benefits hve been overlooked or re not being pid correctly) - compnies cn he expected to sk for this. As provider, wht due diligence do you need to gree to get yourself comfortble bout this, nd do you need to cvet your pricing ccordingly? Also, do you wnt to insist on period of exclusivity with the compny? And wht sort of de-risking will you be looking for in the compny's pension scheme before you proceed to the buy-out stge? (d) Deliverbility 3.3 Issues for trustees Providers lso need to know tht they cn deliver when it's needed. As provider, you wnt to get the del done to get the compny nd trustees to sign on the dotted line. An importnt fctor in chieving this cn be being ble to commit to the client's dedline. This ws criticl driver in the Rnk/Goldmn Schs del, for exmple. Cn you promise this, nd hve you lined up the resources you need? It's lso helpful to hve n pproch tht removes ny unnecessry obstcles. Cn you strip down your legl documents to the bre essentils, so tht you hve covered wht you relly need but there's nothing else in there tht will prove mjor rodblock to the negotitions. () Informtion nd dvice bout the proposed structure Telent is n exmple of wht cn hppen when provider gets it wrong when deling with trustees. Probbly the most importnt lesson to tke wy from tht prticulr cse is tht trustees should be involved in the process s erly s possible nd kept briefed on developments. Trustees need to be ressured s to the nture of the del nd given sufficient time nd spce to llow them to mke their own enquiries nd get comfortble with the del. (b) Assessing the provider: security, reputtion, risk of ssignment 8

8 The trustees will be looking t the provider versus the employer in terms of security. Covennt, stying power, etc. Whilst insurnce compnies re highly regulted, nd re, subject to specific solvency, cpitl nd liquidity requirements tht do not pply to other compnies which operte occuptionl pension schemes (for exmple, insurnce compnies re required to mtch ssets to libilities nd must lso mintin n excess of solvency cpitl), this does not men tht they re immune from filure. Therefore the trustees will need to undertke due diligence on the provider: for exmple, wht is their trck record; wht cpitl resources do they hve; who is bcking them; wht is the scope of their existing commitments nd do they hve room for you? (c) Finncil Services Compenstion Scheme In considering the provider, insurer versus non-insurer, trustees will wnt to consider how the members might be protected if things do go wrong, nd if for exmple the insurnce compny does not survive. Specificlly, the trustees will wnt to consider the protection offered by the Finncil Services Compenstion Scheme (FSCS)4, nd how this compres with the compenstion under the Pension Protection Fund (PPF). (d) Upside for the members? Some providers nticipte tht some "upside" will be delivered to members s prt of the del, e.g. specified benefit uplift. Trustees will obviously wnt to see something like this, in prticulr if they nticipte tht the provider nd/or compny will be deriving profit in time from the trnsction, nd this will be something tht they re likely to fctor into their negotitions. (e) Pensions dministrtion Pensions dministrtion (dt mngement) is likely to be big issue for the trustees, in prticulr if the provider is new to the mrket nd hs no trck record with looking fter people's pensions. Bering in mind tht the scheme could involve 1,'s of pensioners whose next pension pyments fll due within dys of weeks of the buy-out completing, the trustees re likely to wnt to know wht the provider intends to do in reltion to dministrtion of the scheme. If there re proposing in-house dministrtion, do they hve the experience nd cn they cn they cope with scheme of your size nd complexity, nd if they re outsourcing, wht sort of rrngements hve they mde? The trustees my wnt to be involved in the negotition of the ongoing dministrtion rrngements, service stndrds, etc. Trustee protection: indemnities, insurnce Trustee protection is lso likely to be mjor feture of the negotitions between the compny nd the trustees, in prticulr if the scheme is coming to n end. The trustees will wnt to be sure tht they re sufficiently covered, not just by ny indemnity in the scheme rules (nd this would generlly be expected to survive the termintion of the scheme), but by dditionl insurnce to bck this up. The FSCS is the UK's sttutory fund of lst resort for customers of uthorised finncil services firms such s insurnce compnies. The FSCS cn py compenstion if n insurnce firm is unble, or likely to be unble, to py clims ginst it. Like the PPF, it is funded by levies. 9

9 4. OTHER LIABILITY MANAGEMENT SOLUTIONS 4.1 Is buy-out the only option? Libility buy-out is certinly getting ll the press ttention. But it is still quite expensive (it will lmost certinly be 1I% or more of the ccounting deficit) nd cn be too expensive to be vible for the compny. The good news is tht there re some other wys in which compny could bring its pension libilities down to more mngeble levels, nd possibly reduce some of the voltility which is feture of pension costs. Here re just some of them. 4.2 Prtil buy-out This is prtil solution where, for exmple, the full buy-out is too expensive, or where the compny wnts to tke phsed pproch. A number of lrge-scle prtil buy-outs hve been done (see the Appendix), in prticulr in reltion to pensioner libilities. 43 "Buy-in" This is becoming incresingly populr, especilly for pensioner libilities, for which prices re currently quite competitive. Essentilly, this is n nnuity solution tht sits inside the pension scheme rther thn outside. In other words, the trustees buy bulk nnuity to secure the relevnt libilities (e.g. pensioner libilities), nd then hold this hulk nnuity s scheme investment until the scheme winds up nd individul nnuities re issued to the relevnt members. Buy-in lso hs the dvntge of being quick nd strightforwrd. 4.4 Benefit design nd member choice Another option open to compnies is by tckling the benefits tht re ctully being wrded to people. For exmple, if the compny still hs DB members ccruing benefits in its scheme, it my wish to look t reduce its ongoing libilities in reltion to those people t lest by reducing or even cesing future ccrul. Mother option might be member choice progrmme, under which the compny could offer members some options to tke their benefits out of the scheme, for exmple, enhnced trnsfer pyments. Even if the compny pys for the enhncement, this is likely to sve the scheme money: this is becuse the trnsfer pyment will normlly be clculted on the sttutory trnsfer vlue bsis, which is normlly clculted on best estimte bsis (in other words, without mrgins for prudence), nd so is likely to be less thn the funding, ccounting or buy-out cost in reltion to the underlying libility. Offering incresed commuttion options is nother possibility: in other words llowing the member to convert prt of his pension into csh lump sum. Depending on the commuttion fctors which the scheme uses, this gin will lmost certinly be cheper for the scheme to py csh thn to py the sme vlue s pension. Member choice is not without its pitflls. This needs to be hndled very crefully, nd there is potentil misselling risk for the compny if things go wrong, not to mention the reputtionl risk. Employers will normlly provide nd py for independent finncil dvice for the members to guide them through this process. 1

10 4.5 Contingent ssets Contingent sset/funding rrngements hve lso become incresingly populr over the lst few yers, in prticulr for lrger schemes. A contingent sset rrngement is wy of giving dditionl support to the trustees outside the pension scheme. The wy it works is tht specified ssets would be mde vilble to trustees, or pyments mde to them, on certin trigger events. These trigger events could be dip in compny credit rting, significnt reduction in scheme funding, mjor corporte trnsction, nd so on. So when the trigger event tkes plce, the trustees cn cll on the sset for the benefit of the pension scheme. This could be s simple s prent compny gurntee. Or it could be chrge over ssets, n escrow ccount, letter of credit, or n sset-bcked gurntee. There rc number of dvntges to using this sort of rrngement. This cn help to give the trustees the dditionl security they need in order to be comfortble with, sy, less conservtive funding pln or investment strtegy, or shorter or bck-end loded recovery pln so mitigting the incresed funding costs for the compny tht would flow from the trustees dopting more conservtive position. This lso helps to prevent the problem of "trpped surplus" the scheme becoming overfunded over time (becuse once surplus hs built up in the scheme, it is very difficult to extrct). And the trustees might ctully prefer the improved medium to long term security tht contingent funding offers to one-off csh injection. 4.6 Tckling the longevity risk We're lso seeing rnge of new products coming to the mrket, designed to offer innovtive investment or other risk mngement solutions. One in prticulr which is generting lot of interest is longevity swps. Longevity swps re product which is specificlly designed to mnge one of the most problemtic res of risk for pension scheme incresed life expectncy. This cn men significnt extr costs for pension schemes who hve to keep pying pensions to pensioners who re living longer. By wy of illustrtion, the Pensions Regultor hs sid tht if you ssume scheme's members will live for only one more yer, this will increse tht scheme's libilities by 3%. Under longevity swp rrngement, the scheme trustees gree to mke series of fixed pyments to the provider over specified period. In exchnge for this the provider grees to cover the pension scheme's monthly pension pyments until the pensioner ctully dies. This effectively psses the longevity risk over to the provider, so reducing the scheme's longevity exposure, nd the compny's funding cost. 5. IN CONCLUSION A few points in conclusion: The libility buy-out mrket is showing signs of consolidting, but it certinly looks like it's here to sty. Buy-out is not the only option! There re other methods for mnging pension libilities which my lso chieve good result for the prties concerned. It's importnt to weight up ll the options. It's importnt to choose model which ligns compny nd trustee interests. I 1.

11 Don't underestimte the importnce of process, reputtion nd getting it right. Red the smll print! 12

12 ,...,, i '5! t. A4 Compny/pension scheme > o 4.. fp I o c -. i,, Cd. e, c, co 1... P. Q v,-, go U Z o 64 = 2 eli 4 3 A A gt i I 3 R K. c+4 c,. rs, A... Pension Corportion subsidiry PIC will tke on over hlf of the scheme's libilities. The scheme is slightly more thn 6m, three times the compny's mrket cpitlistion. The trnsction brings ssets mnged by PIC to more thn 5m (nd including non-insurnce buy-outs, Pension Corportion now hs responsibility for more thn 4.75bn of pension ssets). Delt ws pprently not ble to fford the full buy-out solution, nd retined responsibility for deferred members, for whom it is considering member choice progrmme. 4) Z. 4 so=. o4 Gn 4. 9 Lti.54 M 5. o c, El oen c..1 Co hi -, I.5 2'1 l H The Friends Provident Pension hve bought 35m bulk nnuity with Norwich Union to cover pensioner libilities (representing 3,2 pensioners). This ws understood to be the first del of its kind for FfSE 1 compny. It ws lso reported tht significnt proportion of the E35m would be held in escrow to provide dditionl security for the trustees. This would be used to py pensions if the insurer is unble to meet future pyments nd will be relesed to Norwich Union over time s the scheme's pensioner libilities reduce.

13 I., tt, A) COMPnYirMISioit scheme. co. l -,. 1.co $ 4 I 44 C) 14 t4 =I Thomson Regionl Newsppers S o cv to t- N 8 g < Non-insurnce buy-out 1:t A Ez 1 4I), O s C14 N.d htz s. t PI SI g E-1 g cu sl g mi lo 'M cu. o 4"4 r- 8 N >4. cl...) g.. 1:1,.,? o Z z Pensions Corportion (Edmund Truell's privte equity consortium nd prent compny of PIC) bought the Threshers group from Terr Firm in My 27, nd then sold mjority stke on to Vision Cpitl in June 27. The min motivtion ws to obtin control of the 85m Threshers pension fund. Pensions Corportion contributed 32m of fresh cpitl into the scheme from the sle proceeds towrds the scheme deficit. Pensions Corportion Telent c 43 m to Nov 27 Non-insurnce buy-out Pensions Corportion Thorn,.c c 41 tt June o,c.. P,} cl u t. (...) t l. Rven Mount plc Swn Hill Pension Scheme 5 cv U My 28 Totl buy-out Pension scheme ssets of 65m re being topped up with n immedite 2m contribution from Rven Mount Plc nd further 5in contribution on one-yer deferred bsis. Pternoster9 4 I Ei co N to cd co N c -...o "M I-1 Lonmin becme the first FTSE1 compny to buy out its pension scheme in del with Pternoster. Though few detils re vilble, it is believed tht the scheme ws in surplus: the scheme reportedly hd the lrgest surplus of ny FTSEI compny in Mrch 28 when its funding level ws 118%.

14 . b r+ r b NI 44 2 i tv t P.1.-- Compny/pension scheme ts4 ct AN. c'll 4i Pi N ei o > o Z N co o (NI c.> ) C:1 Type of del L,5 ri-, 'O' 4 O.."' o >, Q. *... Involved two Emp pension schemes nd 1,7 members (including ctives). Emp contributed 4m s the price of getting them off its hnds. The pension fund del ws designed to mke Emp's sell-off plns esier (it ws in the process of uctioning off its entire opertions). When the del ws nnounced, Emp's shre price incresed by 16%2 to 856p. Before the 4m contribution, the schemes hd deficits of Ern on n ccounting bsis nd 77m on buyout bsis. In this del, Pternoster took on 8m worth of pensioner libilities from the P&O pension scheme, involving 11, members. As prt of the del, the compny trnsferred n 1.8m bond portfolio to Pternoster. P&O retined responsibility for ctive members, nd the scheme: the P&O trustees were renortedly unhnnv t the mm& of En's Lsmo El C.) In tsi Jn 28 Totl buy-out Reportedly the lrgest del so fr conducted by online uction.

15 .v., el Pt 1 rt '1 c. c-1. g el , 1 e... 6:1 4 *O3 Ct. e., Q. 2 w A c' t c n P ul 74 5 CA..I'1 U t--- 8 N.9 A -1 Cr?.--. g..c. '6 il 9,. Y Trnsfer of ssets to Legl & Generl in prtil buyout of its pensions in pyment. This del represents round 2% of the scheme's ssets. The trustee chose to purchse nnuities to mtch portion of the scheme's libilities, the im being to reduce the effect of chnging investment nd mortlity conditions on the scheme's funding position, so providing greter security nd stbility in the funding of ll members' benefits. s OK.g o zi 5 CD Jn 27 Prtil buy-out (pensioners) 1 Book Club Assocites E trl h 4 Dec 27 Totl buy-out le 4 Queens Mot Houses Dec 27 Totl buy-out

16 Oi ms,....,..., WC 1. 1., 717 CU 44 Cin OS :4 (4 `13 cn p... g ri I 4 Compny/pension scheme.x gg Blue Prince Mushrooms pension scheme Powell scheme Dnffryn,--ri.41,-, 1 izi g co co '4' 44 g 5d, Lk o co. 8 8 'L) N EL. N og 8 N Mrch 28 Type of del 9. E. o Totl buy-out Totl buy-out Rnk Group trnsferred the ssets nd libilities of its 7m scheme to Rothesy Life, subsidiry of Goldmn Schs. There were no ctive members in the scheme (ccrul hd cesed shortly before the del ws greed) nd 19, deferred members nd pensioners. The del represented clen brek, nd completely removed Rnk's remining finncil risks nd libilities in reltion to the pension scheme. The del ment tht Rnk ws no longer required to mke contributions of 3.8m, which it hd greed with the scheme trustees when it sold Deluxe Film Services in 26. On completion of the trnsfer, Rnk received csh pyment of round 2m representing the compny's lloction of the expected surplus within the pension pln fter shring n pproprite mount with scheme members. The del followed n online uction. The pension scheme ws in wind up, hving terminted when the sponsoring compny cesed trding in 23. This buy-out del involved 7, members. Pternoster" Chryslis Group Feb 28 This del followed the sle of Chryslis Rdio to Globl Rdio for 17m in 27.

17 1 Compny/pension scheme, 4/ 4 13;1. Ix.1 A., (..., co DRG pension fund 5 <:? ZVI Jn 27 Prtil buy-out (pensioners) c...1 co Q I., Q. c) 8 ry t+1 Dec 27 Prtil buy-out (pensioners) Prtil buy-out involving prt of the Weir Group's 55m pension scheme (pensioner libilities involving 4,5 pensioners). As prt of the del, it ws greed tht 24m of Weir's bond portfolio would trnsfer to L&G v u = Morgn Crucible L71 E 8 I 5 9 g CI. 3 The trustees of the Morgn Crucible UK pension schemes greed to trnsfer 16m of pensioner libilities in two pension schemes (representing bout 3, pensioners) to Lucid. Morgn retined responsibility for deferred nd ctive members nd lso greed to mke one-off contribution of bout 4m to the schemes to fcilitte the trnsction. UK Pper nd M- rel Corportion El 41 co cz, (-4 r Totl buy-out The del involved 2, members. It included L&G tking on ll dt errors nd scheme wind up risks, 'giving the compny clen-brek from the pension scheme.