The Prudential has today taken on the liabilities of a £1bn final salary scheme in what is being called the largest deal of its kind ever in the UK.
The company has committed to meeting the full cost of benefits due to trustees of the Cable & Wireless Superannuation fund who have already retired.
It is the first ever £1bn bulk annuity policy in the UK – topping the £800m P&O scheme taken on by Paternoster in December last year – and, according to commentators, marks “a watershed” in the settlement of pension liabilities.
Steven Dicker, senior consultant at Watson Wyatt, says: “This is a landmark deal which delivers significant risk reduction for both fund members and Cable & Wireless.”
Watson Wyatt, the lead adviser on the transaction, says the agreement is technically a “buy in” of annuities rather than a “buy out” of pension liabilities.
It says individual scheme members will not become Prudential policyholders who receive money directly from the insurer but will, instead, receive payments from Prudential which precisely match what it pays out to pensioners.
“From the members’ day-to-day point of view, this is very much business as usual,” Dicker adds. “There is no question of offloading them – it’s about increasing their security and reducing risk.
“Buying annuities is the safety first approach to making sure that pensions can be paid and this agreement leaves the pension scheme in a particularly secure position.”
The deal means that more than £7.5bn of bulk annuity business has been written in the space of 11 months in the UK and Watson Wyatt says it expects that number to increase sooner rather than later.
“Looking ahead, we expect more transactions on this scale – though some funds will start with do-it-yourself approaches to reducing risk before turning to the insurance market in many years’ time,” Dicker says.
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