Rolls-Royce has made a deal to transfer pension risk liabilities to Legal & General.
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, said: “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.”
The deal will see Rolls-Royce make an exceptional cash contribution of around £30 million. Free cash flow guidance for the full year remains unchanged. Alongside the transfer of around £4.1 billion of liabilities to Legal & General, the Rolls-Royce trustee will also transfer around £4.6 billion of assets. This results in a reduction in net assets of around £500,000 though funding levels remain unchanged.