The British American Tobacco UK Pension Fund has insured £3.4bn of liabilities with the Pension Insurance Corporation (PIC) in one of the largest ever buy-in deals.

The agreement, which has been described as innovative by the trustee and insurer, secures the benefits of 10,600 members (8,300 pensioners and 2,300 non-pensioners). It is claimed by PIC to be the third largest transaction in the UK to date and the largest ever transaction including both pensioner and deferred members.

The transaction secures most of the fund’s £4bn liabilities, which includes a residual section open to ongoing accrual.

The trustees were advised by LCP, which acted as lead transaction adviser and advised on strategic journey planning, transaction structuring and negotiated and executed the transaction. The sponsoring employer BAT was advised by Mercer.

British American Tobacco UK Pension Fund chairman, Brian Barrow, described the deal as good news for members.

“It achieves a significant step towards the trustee’s objective of reducing risk and increasing the security of members’ benefits. We are delighted that we have been able to complete a transaction of this scale successfully, despite the recent market volatility.”

Barrow also praised PIC’s flexibility and use of innovation in the process.

PIC head of business development, Mitul Magudia, said the deal advanced the development of innovative structures in the de-risking market.

“Insuring both pensioner and deferred members introduces more complexity to an insurance transaction, when compared to similarly-large pensioner buy-ins and requires careful consideration of areas including, residual risks, asset strategy and reinsurance,” he said.

LCP head of trustee consulting, Michelle Wright, who worked on the deal described it as a landmark transaction. “The fund exemplifies the growing trend of large schemes accelerating their de-risking plans due to attractive pricing and improved affordability,” she said. “The competitive pricing negotiated with PIC allowed the fund to maximise the amount insured.”

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