Irish Life seals €335m Danske Bank pension deal
DANSKE Bank has transferred €335m of its Irish defined benefit pension liabilities to Irish Life in the largest deal of its kind in the local market.
The deal is part of a worldwide trend that has led to corporations insuring vast amounts of pension liabilities as they attempt to ease headaches caused by unpredictable returns and longer lifespans.
Structured as a so-called ‘buy-in’ – meaning Irish Life agrees to pay benefits under the scheme every month in return for an upfront payment – the move allows Danske to effectively derisk its Irish defined benefit pension scheme. The transaction mirrors mega-deals struck in the UK, the biggest market for these types of creative strategies, as corporations rush to escape costly pension liabilities.
According to a report by the consultancy firm, Hymans Robertson, about £700bn of defined benefit pension liabilities could be handed over to insurance companies by 2032.
So far, the large-scale transactions witnessed in the UK and US have proved thin on the ground in Ireland.
But that may change as experts point to improving financial conditions for DB schemes, which sank into deep deficits in the wake of the crash, as well as the persistently cheap valuations of bulk annuities, compared to other low-risk assets.
John O’Brien, a partner at Mercer, who advised the Trustee of Danske’s Irish DB scheme, described the buy-in deal as a “ground-breaking transaction” that “represents a significant step forward for the Irish defined benefit market”. He claimed it sets “a precedent for using insurance solutions strategically as part of the ongoing risk management toolkit of well-funded schemes, rather than just those facing wind-up”.
Tony Lawless, the managing director of Irish Life Corporate Business, described the Danske transaction as “another example of how Irish Life, through our knowledge of and expertise in the challenges currently being faced by Irish pension schemes, can provide unique de-risking solutions to clients as they manage their way through their pension life cycles”.
“We hope to build on this platform to partner with other clients facing similar de-risking challenges,” he said.
Danske closed its DB scheme to National Irish Bank staff in 2008, three years after it waded into the Irish market, snapping up NIB and Northern Bank in Northern Ireland for about €1.57bn (US$1.85bn).
The scheme had 1,500 members when it was shuttered but its financial performance in recent years is difficult to gauge as the Danske unit running the pension assets does not file fully accessible accounts.
Dankse completed its retreat from the Irish retail banking sector earlier this year, offloading a €1.8bn portfolio of performing loans to Goldman Sachs and Pimco, the US funds giant.
A spokesperson for the Danske scheme said the buy-in marked “another step on our journey plan to further de-risk the scheme and provide even greater security to our members”.
Matheson acted as the main legal adviser to the Danske scheme’s trustee.
Meanwhile, Maples and Calder, the international law firm, has been named top legal adviser to Irish-serviced funds for the fifth year in a row.
The ranking was revealed in the latest Monterey Insight Report, which provides a thorough analysis of the funds sector. Maples was also credited as a market leader in the establishment of new Irish domiciled funds with a 21pc share of new business and was ranked the number one listing sponsor for ISE-listed funds.