Insured Self-Sufficiency ®
A joint insurance and investment solution that allows pension schemes that cannot yet afford buyout to accelerate their de-risking plans.
ISS covers the same types of risk as a bulk annuity, but it uses a modified approach, and provides a different level of protection. These factors mean the typical price difference of ISS compared to a bulk annuity could be 10-15%.
What does it do?
As an introduction to Insured Self-Sufficiency, please watch our animated video, which explains the solution and its benefits.
Insured Self-Sufficiency (ISS) at a glance
ISS brings together the expertise of both Legal & General’s investment management and insurance businesses. It provides DB pension schemes with:
- A cashflow-matched investment strategy and an insurance-based risk framework on their own pension scheme's balance sheet
- The security of a 1 in 200 year capital reserve to protect against a deterioration in funding levels, for example due to investment underperformance or people living longer than expected. This might typically be equivalent to a capital buffer of 12-14% above the best estimate of what we expect the pension promises will cost to provide.
- An enhancement, rather than replacement, of the sponsor’s covenant and protection against the risk of subsequent sponsor insolvency
- Reduced governance and pension scheme running costs
- A clear path and straightforward conversion to buyout at a later date (that doesn’t have to be with Legal & General)
ISS typically covers all members of the pension scheme – both deferred and current pensioners.
How does ISS work?
- Legal & General Investment Management (LGIM), our Group’s Investment Manager, manages the pension scheme’s assets. The assets are managed in accordance with a clearly defined set of investment objectives and constraints to give comfort and certainty to all stakeholders.
- If investments don’t deliver as expected or people live longer, then the capital reserve established at the outset of the ISS structure protects the pension scheme’s funding level
- In return for our capital provision, we expect to receive a series of pre-agreed premiums over the lifetime of the solution. But importantly those premiums are contingent on positive outcomes: should experience be less favourable than expected then we don’t get paid. Instead that money is retained within the pension scheme
Please see our Q&A video for further information.
Insured Self-Sufficiency (word mark) is a registered trade mark in the UK in the name of Legal & General Group plc.
Frequently asked questions
Who manages the assets?
All assets are managed by Legal & General Investment Management (LGIM). Importantly, under ISS they work for the trustees. Legal & General Retirement provides the insurance. We trust LGIM’s track record (after all, they manage the assets for our £72 billion annuity book) and we’re willing to write a large cheque if they don’t deliver.
How does ISS compare to a bulk annuity?
There are three key differences:
- Legal & General’s capital commitment under ISS is capped, rather than being an open ended commitment like with a bulk annuity. While the total capital buffer is sizeable and is sufficient to withstand a 1 in 200 year risk event, this approach also means that a cost saving can be passed on to the pension scheme.
- Rather than paying an upfront premium to Legal & General like with a bulk annuity, the trustees keep their assets within the pension scheme. Since the assets are managed within the pension scheme, there is the option to invest in a slightly wider investment universe than insurers do for bulk annuities. This may facilitate a higher risk-adjusted return compared to equivalently sized bulk annuity transactions.
- ISS also uses a different approach when managing longevity risk. Under the Solvency II framework insurers are incentivised to reinsure longevity risk. With ISS, longevity risk is retained by the pension scheme with capital held against this risk; the saving on reinsurers’ fees can also be passed to the pension scheme.
What type of pension schemes is ISS suitable for?
Typical client situations are ones where the trustees have a relatively well funded pension scheme, but are worried about their sponsor covenant, or large pension schemes with strong sponsors who see ISS as a way to achieve holistic risk reduction.
ISS can currently provide value for tranches of liability of £250 million or more.
Does ISS provide a path to buyout?
As ISS involves the pension scheme investing like an insurer with a capital buffer, they are now aligned to buyout pricing and so volatility is reduced. This helps deliver a low-risk path to buyout in the future.
However, if self-sufficiency is the target, then ISS delivers that in a cost-effective way with strong alignment of interests.