Video

Interview with John Towner, our Head of Origination, on Sky News

John Towner, Head of Origination for our Pension Risk Transfer business, speaks to Sky News about Legal & General's record-breaking buy-in with the British Airways-sponsored Airways Pension Scheme.

John Towner on Sky News video

Transcript

[Ian King]: Welcome back. Now British Airways has offloaded a large chunk of its pension liabilities. Legal & General has agreed cover for 22,000 of the airline’s pensioners in the largest deal of its kind in the UK. Insurers agreed to fund 4.4 billion pounds worth of historic commitments. Well here with me now is John Towner, he’s Head of Origination at Legal & General Retirement Institutional. John, very good evening to you. So why do companies like British Airways want to offload these liabilities?

[John Towner]: Historically companies have found managing and meeting these liabilities to be a very complex affair. A Defined Benefit pension scheme has a lot of risk in it, a lot of different investment factors and it’s been a very complex affair. So by passing responsibility to insurers like Legal & General, we are better able to manage and deliver on the pension promises that were made to employees.

[Ian King]: We’ve seen an awful lot of these deals in 2018 and probably a lot more to come. Why are they so popular now?

[John Towner]: I think what’s happening is you’re seeing a lot of the final salary schemes in the UK, they’re in the healthiest position that they’ve been in for a number of years. Their funding level has improved because investment returns have been good, interest rates have been good, people aren’t living as long as maybe expected, and they’re finding that the cost of passing responsibility for those pensions to an insurer as affordable as it’s really ever been.

[Ian King]: So you would expect to do more such deals for the rest of the year?

[John Towner]: We are. The market is going from strength to strength and we would like to continue to write new business and it’s something that. You know it’s gone from low single digit billions per annum ten years ago to, a lot of people think we’re going to do twenty billion pounds of pension business this year.

[Ian King]: And for people who don’t necessarily understand the ins and outs of the insurance industry, what does legal and general get out of this?

[John Towner]: It’s core to our strategy. We are an investor and we invest in the UK, so when we take on responsibility for these pensions, we have to make investments to back those promises. And we’re investing in housing, infrastructure, rail, urban regeneration…so it’s really core to our strategy. And we also have an asset management, LGIM division, who look after half of the final salary pension schemes in the UK already, so a lot of those schemes as they go through their de-risking journey, they are moving into buy-ins and buy outs with us and the insurance company.

[Ian King]: And, this is getting quite a competitive area. Legal & General have been doing this for years but you’ve got the likes of Scottish Widows, Aviva, Phoenix now crowding into that space. Does that raise a danger that you start mispricing deals or doing deals on too generous terms?

[John Towner]: No. I think what you see in the market is that there’s an awful lot of, it’s very competitive, and every buy-in or buy out opportunity is fiercely fought over, but what you find is particular transactions suit particular insurers. In a year like this year there were a lot of transactions that we took a look at and just simply didn’t quote on because there were other opportunities available to us. So it’s a healthy, it’s a vibrant market that is really delivering for pension schemes in a way that we haven’t historically.

[Ian King]: And in a word, how long do you think this is going to keep a record deal of its kind?

[John Towner]: I’m an optimist, not for long but this is a significantly large transaction so we’ll have to see.

[Ian King]: Alright. John Towner from Legal & General good to see you. Thanks for joining me.