Rolls-Royce Unloads a Portion of its Pension Plan in the U.K.’s Largest Risk Transfer

The automaker-turned-aerospace company has shifted nearly $6 billion in U.K. pension liabilities to Legal & General.

Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

British aerospace company Rolls-Royce has transferred a £4.6 billion ($5.85 billion) chunk of its pension scheme to Legal & General Group in what the investment and insurance firm is calling the largest-ever bulk annuity deal in the U.K.

The pension buyout represents about 33,000 plan members and more than a third of Rolls-Royce’s pension scheme, according to a statement Thursday from Legal & General. The transaction leaves the former automaker with £8.4 billion in pension assets.

“The transaction will provide greater security and certainty around the retirement benefits our members have been promised,” Liz Airey, chair of the trustees for the Rolls-Royce pension fund, said in the statement.

With the announcement of this deal, Legal & General said it has now been a part of four of the five largest pension-risk transfers in the U.K., including British Airways’ £4.4 billion pension buy-in last year. The global record is General Motors Co.’s transfer of $25.1 billion in pension liabilities to Prudential Financial in 2012, according to a paper from Harvard University’s business school that was revised in 2015.

“The global PRT opportunity remains sizeable and compelling,” Legal & General chief executive Nigel Wilson said in the statement. According to Wilson, only 8 percent of the £2.2 trillion in U.K. defined benefit pension liabilities have been secured by a pension-risk transfer deal. And an even smaller proportion of the $3.5 million in U.S. defined benefit liabilities have been transferred, he said.

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A MetLife survey of 102 U.S. plan sponsors last year found that roughly two-thirds were interested in conducting an annuity buyout, following well-publicized annuity deals made by large U.S. companies like FedEx, which transferred $6 billion in pension liabilities to MetLife in May 2018.

So far this year, Legal & General said it has completed over £6.2 billion in pension-risk transfer deals globally.

The firm’s “pipeline and appetite for further transactions” in the second half of this year remains strong, Wilson said.