£1.9bn of liabilities covering 55% of current pensions secured

RSA its UK pension schemes’ Trustees have insured £1.9bn – about a third - of the schemes’ liabilities with Goldman Sachs and Rothesay Life.

This covers more than 55% of the liabilities relating to pensions currently being paid.

Andy Haste, Group CEO of RSA, said: “We are pleased to have worked with the Trustees to deliver a strong solution that takes advantage of market conditions. Following the action taken in previous years, the schemes were strongly positioned to achieve this next step with such solid security. This transaction further de-risks the impact of the UK pension schemes on the group’s results and balance sheet.”

Steve Broughton and Keith Greenfield, Trustee chairmen of the main UK pension schemes, said: “Both Trustee Boards support this transaction to protect a substantial proportion of the liabilities against future longevity improvements and mitigate the sponsor covenant risk while retaining a very strong security arrangement. This action is consistent with our fundamental objective of ensuring the schemes are able to meet their long term obligations.”

De-risking pensions

  • RSA said it was part of a plan to de-risk its pensions liabilities that have included:
  • Closing the defined benefit schemes to new members and introducing employee contributions
  • Closing out all final salary liabilities for past service and moving to career-average revalued earnings (CARE) for future service
  • Hedging market exposure via an extensive programme of interest rate and inflation swaps
  • Reducing equity exposure from 46% to 24% by selling approximately £900m of equities (2007).

Breathe new life

The FT quoted Addy Loudiadis, chief executive of Rothsay Life, the Goldman unit, as saying: “In a time when the pension buy-out area had lost a bit of its sparkle, our deal with RSA should breathe some new life into the sector.”

It also reported Paul Trickett, a consultant at Watson Wyatt, which advised the trustees, as saying RSA’s deal and the derivative trade allowed trustees to keep control of how assets were invested.

“Now that a few large funds have completed such transactions, we expect more to follow quite quickly,” Mr Trickett said.

Pensions shortfall growing

The Times reported that the Pension Protection Fund said the shortfall in UK final salary pension schemes widened from £196.8bn in May to £215.8bn in June. At the same point last year, the shortfall was £60.3bn.