Pension buy-in for the Aberdeen City Council Transport Fund 

Mercer advised Aberdeen City Council on only the second bulk annuity transfer by a local authority.

The £230 million pension buy-in for Aberdeen’s Transport Fund, completed in 2020, insured the pension payments of 1,360 retired FirstGroup employees with Rothesay.

Mercer was the lead advisor on the Aberdeen transaction, just as it was for the first defined benefit (DB) pension bulk annuity transfer for a Local Government Pension Scheme (LGPS) fund.

Both transactions brought together expertise from Mercer's LGPS and Risk Transfer teams to work with the pension fund’s legal advisors, investment advisors and the insurers to ensure the fund met its goals.

The brief

To reduce reliance on the sponsor covenant by insuring the pensioner liabilities through a bulk annuity transfer.

The outcome

By bringing together experts from our Risk Transfer and LGPS teams, Mercer helped the Aberdeen City Council Transport Fund undertake a competitive broking exercise within a public procurement environment.

The negotiation phase that we built into the project gave the pension fund confidence that we had sourced a good price and that contractual terms were attractive too.

The transaction itself was overlaid by a robust price-lock, enabling the pension fund to have full transparency on the price it was paying.

Anatomy of Aberdeen’s LGPS pension buy-in transaction

Mercer put in place a four- stage process to include all stakeholders – Aberdeen City Council Transport Fund, Mercer, the Fund’s legal advisors (Brodies LLP), the Fund’s investment advisor and the insurers - and create a competitive environment that led to a successful buy-in transaction for the Aberdeen City Council Transport Fund.

Establish project

  • We held training sessions for members of the Fund’s pensions, legal, procurement, investment and administration teams.
  • We scheduled calls with all insurers in the market so we could describe the project’s aims, determine timescales and seek views on structure – helping maximise participation and competitive tension.

Disclosures (4 weeks)

  • The Fund provided us with anonymised member data.
  • Working with the Fund, we prepared the benefit description, which was then reviewed by the Fund’s legal advisers.
  • We agreed the ‘Request for Proposal” process with the Fund’s procurement team.

Feasibility (8 weeks)

  • The Fund released disclosures to all eight insurers.
  • We scheduled calls with all insurers.
  • Quotations were received from five insurers.
  • Together with the Fund, we analysed the quotations and refined the targets and criteria.

Phase A (2 weeks to price, 2 weeks to shortlist)

  • The Fund released the refined criteria to the five insurers.
  • We scheduled calls with the five insurers.
  • Second quotations were received from five insurers.
  • Together with the Fund we analysed the quotations against pre-determined criteria and invited three insurers to proceed to the final round.

Phase B (2 weeks to price, 2 weeks to shortlist)

  • Together with the Fund, we released a weighted scoring mechanism – developed by Mercer to align with the Fund’s objectives – to the remaining three insurers.
  • We scheduled calls with the three insurers.
  • Third quotation received from two insurers.
  • Working with us, its legal advisor and investment advisors, the Fund entered into a two-month period of exclusivity with the highest scoring insurer – Rothesay Life.

  • Rothesay Life effected a price lock.
  • Working with the Fund and us, the Fund’s Investment Advisor aligned assets to the price lock.
  • A detailed contract negotiation undertaken involving the Fund’s legal advisors, Rothesay and us.
  • The Fund worked with its investment advisor to transition the assets.
  • The risk was transferred from the Fund to Rothesay Life.

  • Rothesay provides an income stream to the Fund.
  • Monthly reporting gives peace of mind that experience (for example pension increases, deaths, new spouse pensioners) is properly aligned.
  • There was an 18 month period to for the Fund and Rothesay to finalise data.
It was great working with Mercer who guided us through the process from start to finish, helping us manage various internal and external stakeholders and keep everyone on-track to ensure a competitive process, ultimately delivering value for money.
Aberdeen City Council Transport Fund
Related solutions
Related insights