Tuesday, July 7, 2020

Rolls-Royce offloads £4.6bn of its pension scheme in biggest UK deal ever

Derby-headquartered Rolls-Royce has completed a deal to transfer a third of its pension risk liabilities to Legal & General Assurance Society Limited in what is known as a known as a pension buyout.

The deal covers the transfer of assets and liabilities relating to approximately 33,000 pensioners who are members of the Rolls-Royce UK Pension Fund out of a total of 76,000 members. The transaction will fully insure benefits payable from the fund and provide permanent security for pensioners, while reducing the Group’s post-retirement obligations by around £4.1 billion. The residual obligations, which remain well funded, will be smaller with less risk for the Trustee and Rolls-Royce to manage in the future.

Pensioners included in the transfer will have their benefits handled by one of the largest and most highly-rated insurance companies in the world, with expertise in insuring and administering pensions.

Joel Griffin, Head of Global Pensions & Benefits, Rolls-Royce, says: “This agreement will result in increased security for Rolls-Royce pensioners and reduced risk for our business. Legal & General is one of the world’s leading insurance companies and as a result of this deal the provision of benefits will be governed by stringent funding requirements, resulting in a secure pension environment for our pensioners.”

Stephen Daintith, CFO, Rolls-Royce adds: “This is a significant transaction which represents another step on our journey to simplify, de-risk and strengthen the company. Rolls-Royce and the Trustees of the Rolls-Royce UK Pension Fund have worked intensely to ensure that the fund continues to have the resources it requires to meet its obligations. This agreement is a further step towards ensuring benefits for our pensioners.”

The deal will see Rolls-Royce make an exceptional cash contribution of around £30m. Free cash flow guidance for the Full Year remains unchanged. Alongside the transfer of around £4.1bn of liabilities to Legal & General, the Rolls-Royce trustee will also transfer around £4.6bn of assets. This results in a reduction in net assets of around £0.5bn though funding levels remain unchanged.

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