The trustees of the British American Tobacco UK Pension Fund have agreed a third and final buy-in with the Pension Insurance Corporation (PIC), covering the remainder of its uninsured liabilities.

This is the third buy-in for the scheme, after trustees previously agreed a £3.4bn buy-in with PIC in May 2019, and a further £400m buy-in with PIC in July 2021.

According to British American Tobacco’s annual results, the buy-in is intended to match a specific part of the scheme's future cash flows arising from the accrued pension liabilities of retired and deferred members, as well as improving the security to the scheme and its members.

The buy-in insured around £250m of liabilities, with £198m of assets transferred immediately, while £35m of the premium deferred until 2023 and 2024.

The trustee received advice from LCP, which also acted as lead adviser for all transactions, whilst legal advice was provided to the trustee by Linklaters and to the scheme actuary by Hymans Robertson, and PIC was advised by Herbert Smith Freehills.

British American Tobacco UK Pension Fund chairman, Graeme Munro, highlighted the transaction as a "major milestone" for the scheme, with PIC now having insured all £4.1bn of the scheme's liabilities.

Munro continued: "This is another step towards the trustee’s objective of increasing the security of members’ benefits and reducing risk.

"We have been consistently impressed with PIC’s commitment to excellent customer service ever since the first transaction and this was an important factor in our decision to transact with them again.

"I would like to thank PIC and our advisers for their collaborative and flexible approach in getting the transaction done in volatile market conditions.”

Adding to this, PIC head of business development, Mitul Magudia, stated: “It has been a pleasure working with the trustee and its advisers on securing this final buy-in.

"This transaction underlines the excellent relationship formed between the Fund, its advisers, and PIC. This relationship has been fostered over the last four years, since our initial transaction in May 2019.

"These three linked transactions have moved the market forward in respect of what is possible in the risk transfer market. We expect the approach taken here to form a template for a number of large schemes currently preparing to move to insurance.”

LCP partner and lead adviser to the trustee, Yadu Dashora, also highlighted scheme's journey as a "leading example of how to navigate this well, pioneering a range of solutions that will serve other schemes well over the next few years as they seek to follow in the fund’s footsteps and reach full insurance".

"Successfully completing a phased buy-in journey from start to finish requires careful planning and execution," Dashora continued.

"For many schemes like the fund, this will require bespoke solutions for illiquid asset holdings."

The UK scheme buy-in was also announced alongside a partial buyout for the group’s US scheme, the Reynolds American Retirement Plan, with approximately £1.3bn of plan liabilities removed from the balance sheet as a result, resulting in a settlement gain of £16m.

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