The Rolls-Royce UK Pension Fund has insured the pension benefits of around 40% of its members in a £4.6bn (€5.2bn) deal with a Legal and General unit.
The transaction will reduce Rolls-Royce’s post-retirement obligations by around £4.1bn. In addition to offloading these pension liabilities, the trustee will transfer around £4.6bn of assets to the insurer.
Rolls-Royce will also make an exceptional cash contribution of around £30m.
The deal covers the benefits of around 33,000 in-payment pensioners out of a total of 76,000 members.
Joel Griffin, head of global pensions & benefits at Rolls-Royce, said: “This agreement will result in increased security for Rolls-Royce pensioners and reduced risk for our business.
“This would not have been possible without the close collaboration and commitment of our trustees and advisers over many years, ensuring that the scheme is well-funded.”
Stephen Daintith, Rolls-Royce’s chief financial officer, said: “This is a significant transaction which represents another step on our journey to simplify, de-risk and strengthen the company.”
The transaction was structured as a partial buy-in to buyout, meaning Legal & General would also become responsible for administering and paying the pensions.
The insurer noted that the deal “involved a number of significant and innovative solutions”, such as the transfer of a hedging portfolio and the restructuring of an existing longevity swap held by the pension fund.
The insurer said the deal represented about 30% of the pension fund’s assets and was equivalent to 25% of the market capitalisation of Rolls-Royce Holdings.
Legal & General said the transaction was the UK’s largest pension buyout. The previous largest UK bulk annuity transaction was a £4.4bn deal between the British Airways Pensions Scheme and Legal & General.
The insurer has struck more than £6bn worth of global bulk annuity transactions this year.