Rolls-Royce Sells Its UK Pension Fund In A $5.8bn Deal With PIC

The deal with Pension Insurance Corporation (PIC), a specialist insurer of defined benefit pension schemes, will cover Rolls-Royce’s entire outstanding liabilities to its workers, comprising the pensions of 36,000 people (15,000 pensioners and 21,000 deferred members), the two companies said in a statement.

Rolls-Royce seals PIC pension agreement

A key focus for the Trustee as part of the transaction was partnering with an insurance company with the same commitment to very high levels of customer care and support, which has been at the heart of the Trustee’s strategy in running the Fund.

The deal with PIC fully insures benefits payable from the Fund, providing certainty and security for the defined benefit scheme’s members. They will have their benefits secured by one of the UK’s largest regulated insurers, with a strong track record of high standards of customer service.

Liz Airey, Chair of Trustees, Rolls-Royce Pension Fund, said: “This is a landmark agreement that will result in increased certainty and security for Rolls-Royce pension scheme members. In PIC, we have found a partner who will also be able to maintain the high levels of customer service that our members deserve.”

The sale is expected to bolster Rolls-Royce’s efforts to simplify its business. The company’s pension liabilities have weighed on its performance over recent years, and the disposal comes as Chief Executive Officer Tufan Erginbilgic seeks to streamline its business as demand for its engines surges.

Helen McCabe, CFO, Rolls-Royce, added: “This is a win-win for all our stakeholders. We are proud to have been able to fully fund and secure the pension promises made to colleagues, former colleagues and their families. This deal is also another step on our journey towards simplifying Rolls-Royce.”

The deal involves the final defined benefit pension scheme backed by Rolls-Royce in the UK. The buy-in includes the transfer of assets in exchange for an insurance arrangement that offsets liabilities. It has been secured in anticipation of a full ‘buy-out’ – in which liabilities and management of benefits are transferred – of the scheme at a later date.

In July this year, PIC was acquired by Athora Holding Limited for approximately £5.7 billion (US$7.67 billion). Athora is a leading pan-European savings and retirement services group with €76 billion (US$88.6 billion) of assets under management and administration.

Mitul Magudia, Chief Origination Officer at PIC, said: “It has been a pleasure working on this innovative transaction with the Trustees and their advisers. They have developed an excellent customer experience offering for their members over the past few years.

“Ultimately, the transaction hinged on who they felt would be best able to continue to provide the same levels of customer care and consideration. We were delighted to be selected and proud that the Trustees have entrusted us with helping to continue to deliver this service to the members.

“Following the announcement of our acquisition by Athora, which is subject to regulatory approval, we expect to have strong appetite to complete many more ground-breaking transactions like this in the future.”

The transaction will be fully funded from existing pension plan assets and will result in a reduction in Group net assets of approximately £0.6 billion (US$807 million). A full transfer of liabilities is anticipated within the next 12 months, coincident with PIC assuming direct responsibility for delivering insured benefits.