Insured Self-Sufficiency ®
A joint insurance and investment solution that allows pension schemes to accelerate their de-risking plans at a discount to bulk annuity pricing, whilst providing many of the same benefits. For a typical pension scheme that discount could be 10-15%.
Insured Self-Sufficiency (ISS) at a glance
ISS 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
- An enhancement, rather than replacement of the sponsor covenant and protection against the risk of subsequent sponsor insolvency
- A straightforward conversion to buyout at a later date, which 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 and General Investment Management (LGIM), our Group’s Investment Manager, manages the pension scheme’s assets in accordance with a clearly defined set of investment objectives and constraints
- If investments don’t deliver as expected or people live longer, then the capital reserve established at outset of ISS 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.
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.
Why is ISS cheaper than a bulk annuity?
There are two key reasons for this:
- ISS does not provide the same level of protection as a bulk annuity. This is because the 1-in-200 year level of capital under ISS is capped at outset, rather than being an open ended capital commitment like our insurance book.
- Unlike a bulk annuity, the pension scheme’s assets are retained by the scheme and not paid to Legal & General. This means that we can invest in a slightly wider pool of assets and also means that we don’t have to hold an additional Solvency II capital buffer known as the Risk Margin.
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 at a more affordable price.
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 volatility is largely removed. 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.
Insured Self-Sufficiency (word mark) is a registered trade mark in the UK in the name of Legal & General Group plc.