British Airways (BA) has agreed a £4.4bn buy-in deal with Legal and General (L&G) for one of its defined benefit (DB) pension schemes.
In an announcement today (13 September), the parties stated the deal was the largest bulk annuity transaction ever made in the UK market.
The deal, which will cover about 60 per cent of all pensioner liabilities, concerns the Airways Pension Scheme (APS), and is considered a significant step in reducing risk in the pension fund, the trustees said.
The scheme was closed to new entrants in 1984, and currently has more than 24,000 members and assets worth £7.6bn.
In a bulk annuity transaction, pension schemes pay a premium and in exchange the insurer writes an annuity that pays the retirement income of a proportion of a scheme's pensioners who have already retired.
The transaction accounts for existing longevity reinsurance contracts of about £1.7bn that APS had entered into with Canada Life Reinsurance and PartnerRe, which were incorporated into the buy-in arrangement.
Following completion, APS will be 90 per cent hedged against all longevity risk, according to the scheme trustees.
The APS trustee worked with PwC as lead transaction advisers, alongside Allen & Overy, Eversheds Sutherland and Willis Towers Watson. L&G were advised by Clifford Chance.
Virginia Holmes, chair of the scheme trustee, said: "[The deal] demonstrates the vision and determination of the trustee to reduce risk and increase security for members.
"Today’s announcement is the culmination of much hard work undertaken over several months and we are pleased to be taking this significant step in the scheme’s de-risking journey."
The deal was not the first initiative from the airline company to cut its pension bill. BA had introduced a flexible defined contribution (DC) scheme, which will allow staff to opt for cash instead of a pension, after the closure of another one of its DB pension funds.
In March the New Airways Pension Scheme (NAPS) was closed to future accrual, and the British Airways Retirement Plan (BARP), the airline's current main UK DC scheme, shut to future contributions.
maria.espadinha@ft.com
