The trustee of the Merchant Navy Officers Pension Fund (MNOPF) has concluded a buy-out covering £1.3bn ($2.2bn) of members’ pension benefits in the Old Section, effectively insuring all pension entitlements from this part of the fund that closed in 1978.

Some 40,000 members will receive their full pension entitlement through individual policies with insurance de-risking providers Rothesay Life and Legal & General.With no outstanding liabilities, the MNOPF Old Section will be formally wound up in a short few weeks.

“Our top priority in negotiating this arrangement has been to secure the benefits of all our members. This move achieves that goal, enabling us to have successfully managed the risks facing the fund as a whole,” said Peter McEwen, MNOPF chairman.

MNOPF has also secured with Rothesay Life a further £25m in liabilities to improve the benefits paid to all Old Section members. Each member will receive a 2.2% pension increase payable through their policy from July 1 this year. The fund said this was a “rare move” in these types of transactions.

“Overall our members will enjoy greater security than most pension fund members, thanks to the regulatory and capital requirements for insurers, which are more rigorous than those of most pension funds,” said McEwan.

This transaction with Rothesay Life follows the £680m bulk annuity transaction arranged with the firm in 2012. MNOPF has also completed two transactions covering £600m of liabilities with Legal & General.

“Improving the Old Section’s funding position from a little over 80% in 2009 to full funding today, and completing these transactions, have been tremendous achievements in these very difficult markets,” said CEO Andrew Waring.

“Key to the successful outcome was the setting of strategic objectives and a long term journey plan at the outset to achieve the overall de-risking and arrive at a sufficiently strong funding position.”

Members will have individual insurance policies securing their full pension entitlements in the Old Section, and in some cases with more than one provider.

The fund has created a new service to carry out the administration involved in transitioning to the insurance environment.

MyMNOPFpension is a single point of contact through which members will continue to receive a single pension payment even if they have individual policies with both insurers and benefits from the fund’s New Section.

“This latest transaction marks a very significant moment for the Fund.  It comes as a result of the determination of the Trustee to minimise the period between buy-in and buy-out and so provide the maximum uplift to members.The collaborative approach of our counterparties was crucial to us being able to retain sufficient funds to enter a further transaction with Rothesay Life,” added Waring.