This content is from: Portfolio

Pearson Announces £1.2 Billion Pension Liability Deal

Insurers Legal & General and Aviva will split the liabilities through a bulk annuity deal.

  • Joe McGrath

Education and training provider Pearson has offloaded £1.2 billion ($1.6 billion) in pension liabilities through a bulk annuity deal with insurers Legal & General and Aviva.

In a statement to the London Stock Exchange, Pearson said that the deal would cover around one third of total plan liabilities, which will be split equally between the two insurers. Investment consultant Lane Clark and Peacock ran the bidding process to select the insurers on behalf of the Pearson pension plan.

“The plan is in a strong funding position and we have recently been following a strategy to reduce risk and align our business more closely with the benefits that we need to pay members,” a Pearson spokesman said.

Pearson has been shoring up its defined benefit scheme in recent years following the Penguin Random House merger in 2013 and the sale of the Financial Times Group in 2015. These deals led to a £321 million surplus in Pearson’s U.K. pension plan as of the end of June 2017 – up from £158 million at the end of 2016, according to a regulatory filing.

Pearson’s defined benefit plan has some £3.5 billion in assets and includes liabilities for scheme members who worked for several brands that the company used to own, including the Financial Times, Thames Television, and Tussards Group.

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As defined benefit schemes like Pearson’s seek to manage their future obligations, they have increasingly been outsourcing liabilities to insurers through bulk annuity deals. Under these transactions, an insurer takes on some of a pension scheme’s future obligations in exchange for a fee.

In August, LCP predicted in a resarch note that liability transfers would exceed £10 billion in 2017 through buy-in and buy-out transactions.

On Tuesday, Clive Wellsteed, partner at LCP, said today’s transaction would “supplement the busy start to the year,” adding that transaction volumes were on track to exceed £10 billion for the fourth year running.

In a statement, Kerrigan Procter, chief executive officer at Legal & General Retirement, said his firm is seeing demand for buy-ins, buyouts, and longevity insurance grow as pension plans continue to make funding improvements and manage risks.

“In the U.K. alone, we are currently quoting on circa £15 billion of pension buy-in and buyout business,” he said.

Andy Briggs, chief executive officer of Aviva UK Insurance, said the £600 million deal was indicative of the insurer’s future ambitions in the bulk annuity market.

“We’re continuing to see very strong demand for bulk annuity deals as more and more trustees look to find the right solution to manage their defined benefit pension schemes,” he said.

Briggs confirmed that the insurer has recently been expanding its bulk annuity team with a view to future growth. In August 2017, Aviva hired away Legal & General’s head of bulk annuities and longevity insurance, Tom Ground, to head up its defined benefit solutions team. Ground had been with Legal & General since 2010.