Information about the RSA (Royal Sun Alliance) Group Pension schemes (2024)

You may have seen a market announcement from RSA’s parent company (Intact Financial Corporation) about the purchase of insurance contracts to support paying the benefits due to members and beneficiaries.

The Trustees of SALPS and RIGPS have, following work over a number of months, agreed, alongside RSA and Intact Financial Corporation, the purchase of these insurance contracts.

The purchase of insurance contracts simply means that the Schemes hold an insurance policy which pays a monthly amount to the Scheme in order to meet the cost of the pensions.

The Trustees believe this transaction is a positive step for the Schemes, as it increases the security of members’ benefits by removing many of the remaining investment, demographic and funding risks the Schemes could face in future.

The Trustees wanted to inform you about the transaction soon after the company announcement and to highlight the following important points:

• There will be no change to the amount of Scheme pension that you are entitled to receive.
• The Trustees will continue to manage the Schemes and be responsible for paying your benefits.
• WTW will continue to administer the Schemes on a day-to-day basis, so all of its contact details will remain the same.

These insurance contracts will be provided by Pension Insurance Corporation plc (PIC), a leading specialist insurer which is well regarded for the quality of its customer service. The insurance contracts are the primary investment assets held by the Schemes. They have been funded by a combination of the assets already held in the Schemes, alongside a substantial cash injection from Intact Financial Corporation.

PIC is one of the UK’s leading pension insurance providers. It was selected following a full market review and an extensive due diligence process. PIC is authorised and regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

The Trustees will be providing full details of the transaction, along with further information about PIC, and what this means for the Schemes in due course. This will likely be in early April 2023. In the meantime, you can find out more about who PIC are by visiting their website:

www.pensioncorporation.com

PIC will need to hold member data and therefore we would like to draw your attention to PIC’s privacy notice, which explains how PIC use personal data:

www.pensioncorporation.com/content/dam/pic/corporate/documents/privacy-notices/PIC-privacy-notice-pic-buy-in.pdf

Please note that WTW, our Scheme administrator, whose contact details are on the website, will not be able to provide any details about the specifics of the transaction.

Frequently asked questions

Why are we insuring our pension liabilities with an insurer?

• Since acquiring RSA, Intact has been interested in pursuing a bulk purchase annuity in respect of the SALPS and RIGPS and has been actively monitoring the pension risk transfer market.
• Up until recently, the cost of a bulk purchase annuity in respect of the Schemes was determined to be prohibitive.
• However, as a result of recent increases in interest rates/gilt yields and favourable insurance pricing, the cost of purchasing a bulk annuity has fallen substantially.
• Intact has chosen to capitalise on this opportunity to de-risk its balance sheet during this favourable pricing window.
• Due to significant preparatory work and a robust monitoring framework, all parties were well placed to progress our engagement with the insurers when market conditions became more favourable.

Why would the Trustees enter into this transaction?

• The Trustees seek to run the Schemes in a prudent and low risk manner and are required by law to act in the best financial interests of the beneficiaries.
• The substantial cash injection on offer from Intact, alongside the ability to remove future funding risks by moving into an insured arrangement, make this an attractive opportunity for the Trustees of both Schemes to improve the Schemes’ funding positions and to remove many of the remaining risks they currently manage.
• This increases security for members over the long term.

What risks will remain with respect to the Schemes after the transaction is completed?

• The primary risk remaining would be the insurer not meeting its obligations to pay the Schemes what is required to meet the insured benefits.
• PIC is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. PIC is one of the UK’s leading pension insurance providers and specialises in taking on and managing the long-term risks associated with DB pension schemes. PIC were chosen after an extensive due diligence process, including a review of the company’s financial strength. In May 2022, Fitch Ratings, an external credit rating agency, affirmed PIC plc’s Insurer Financial Strength Rating at ‘A+’ (strong) and Long-term Issuer Default Rating at ‘A’. The ratings reflect PIC’s capitalisation and leverage, profitability, investment risk, and asset-liability management, all of which Fitch assesses as ‘Very Strong’. Further information on PIC’s external rating can be found on the company website (www.pensioncorporation.com/investors/credit-ratings).
• PIC’s purpose is to pay the pensions of its current and future policyholders. It has a portfolio of £40.7 billion (as at 30 September 2022), backing payments to its 300,000 policyholders. To date PIC has paid more than £10 billion in pension payments to its policyholders, with a 99% customer satisfaction rating.
• Additional protections have been built into the policies to protect against counterparty risk and the Schemes will benefit from coverage under the Financial Services Compensation Scheme, which provides cover in the event an insurer is unable to meet its obligations.
• Some smaller risks (such as in relation to the Schemes’ data) will remain in the Schemes, but these are not anticipated to be significant.
• At the current time, RSA / Intact will remain the ultimate guarantor of the benefits due from the Schemes.

Why would the Company enter into this transaction?

• While the risks associated with the Schemes are well-managed, the Schemes continue to expose RSA to a wide range of financial risks. RSA and the Trustees have to regularly estimate how much is required to meet the future obligations, some of which will last many decades into the future. Small changes in these estimates can trigger the need for RSA to make large payments into the Schemes.
• The transaction is essentially a purchase of insurance by the Schemes. RSA/Intact are paying a contribution to the Schemes up front to insure against future unexpected additional costs, which could arise for example as a result of investment returns being lower than expected or members living longer than expected.
• RSA is required to hold capital against the risks that the Schemes represent, and some of this can be released and used to partially fund the additional cost of insuring the Schemes.
• We believe this transaction will enable RSA and Intact to operate a more focused balance sheet and more predictable return profile for our investors.

How will the purchase of the insurance contracts affect Scheme members?

• Members will benefit from the increased security of having a specialist pension insurer backing their pension payments. Members will not otherwise see any change – their relationship will continue to be with the Schemes via the administrators in the usual way.

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If you receive an email or a text message from someone you don't know, the safest option is to ignore it and don't click on any links.

You can find more information on how to identify potential pension scams here

The Financial Conduct Authority's ScamSmart website includes general help around protecting you from potential scams.

As you will be aware both the Royal Insurance Group Pension Scheme (RIGPS) and the Sal Pension Scheme (SALPS) are defined benefit pension arrangements. This means that your benefit was calculated at the point you left the Scheme; increases are then, normally, granted between your date of leaving and your retirement date in accordance with the basis defined under the relevant Scheme’s rules.

At retirement you may have the option of being able to exchange part of your pension for a tax-free cash lump sum payment. When you take your retirement benefits the options available to you are calculated using a variety of factors that are recommended by the Scheme Actuary and approved by the Scheme’s respective Trustee. These factors are subject to regular reviews.

In determining the maximum tax-free cash lump sum that may be paid to you the Scheme applies a cash commutation factor; this is the factor used to convert pension to cash at retirement with £1 of pension providing £x of cash. You may have more than one factor applying, depending upon your period of membership. The commutation factor is also used to calculate the amount of pension given up to provide the cash sum.

The Trustees review commutation factors from time to time and in recent years, as interest rates fell and stayed low, and as life expectancy increased, the general direction of travel has been for commutation factors to increase.

As a result of significant risings in interest rates since the last review in 2022, the Trustees recently completed a new review. The result of this review is that cash commutation factors have been reduced which means that there is a reduction in the amount of cash payable from the Schemes for each £1 of pension surrendered.

Please note that this change does not affect your full pension but may result in a lower tax-free cash sum and reduced pension being payable if you take the cash option.

All Scheme factors, including those that apply to benefits being paid early and late against the date they are due, commutation factors and transfer value factors are subject to regular review and apart from transfer values (which are guaranteed for three months) are not guaranteed for any period of time.