Key Takeaways
- • Global actuarial consultancy Mercer advised the Rolls-Royce UK Pension Fund on a record partial buy-out worth over £4.6 billion, according to Consultancy.uk.
- • Legal & General assumed responsibility for paying pensions of about 33,000 of the scheme's 76,000 members, covering roughly a third of scheme assets.
- • The transaction is described as the largest pension buy-out of its kind in the UK, aimed at removing future pension risk from Rolls-Royce's balance sheet.
- • Rolls-Royce's UK pension fund reported assets of £12.8 billion and a surplus of £1.9 billion in March 2019, while overseas plans carried a £1.3 billion deficit.
- • Mercer acted as the Trustee's strategic investment adviser, advising on the premium payment portfolio, the retained investment strategy and the transition of premium assets to Legal & General.
Summary
Global actuarial consultancy Mercer has advised the Rolls-Royce UK Pension Fund on a record buy-out worth over £4.6 billion, according to Consultancy.uk. The transaction, placed with Legal & General, is aimed at removing future pension risk from the balance sheet of the engineering group.
Under the transaction, Legal & General takes on responsibility for paying the pensions of some 33,000 of the scheme's 76,000 members, covering about a third of the scheme's total assets. Rolls-Royce said in March 2019 that its UK pension fund had assets of £12.8 billion and a surplus of £1.9 billion, while its overseas pension plans carried a deficit of £1.3 billion, principally unfunded US healthcare and pension plans and unfunded German pension plans. The UK pension fund was formed in 2016 by consolidating the main Rolls-Royce scheme with three other UK pension schemes.
The deal comes amid a broader restructuring at Rolls-Royce under CEO Warren East, which has included selling under-performing units, stripping out layers of management and plans that will ultimately see almost 5,000 staff leave the business. Rolls-Royce's pensions head, Joel Griffin, said the agreement means "increased security for Rolls-Royce pensioners and reduced risk for our business," with benefits governed by stringent funding requirements.
Mercer, which the article describes as the largest pensions consultancy in the UK, acted as the Trustee's strategic investment adviser for the partial buy-out. James Maggs, Partner at Mercer and lead investment adviser to the Trustee, described the transaction as "ground-breaking" and said the fund's funding surplus reflected "exceptional risk management over a sustained period."
The article contrasts the Rolls-Royce approach with pension offloading by British Steel, which transferred its scheme to the Pension Protection Fund after its takeover by Tata, and House of Fraser, where workers faced pension cuts of up to 10%. Publisher context notes that a separate Rolls-Royce buy-in with Pension Insurance Corporation was later reported at £4.3 billion, so the £4.6 billion figure should be read as the Legal & General transaction described in the primary source.
Under the transaction, Legal & General takes on responsibility for paying the pensions of some 33,000 of the scheme's 76,000 members, covering about a third of the scheme's total assets. Rolls-Royce said in March 2019 that its UK pension fund had assets of £12.8 billion and a surplus of £1.9 billion, while its overseas pension plans carried a deficit of £1.3 billion, principally unfunded US healthcare and pension plans and unfunded German pension plans. The UK pension fund was formed in 2016 by consolidating the main Rolls-Royce scheme with three other UK pension schemes.
The deal comes amid a broader restructuring at Rolls-Royce under CEO Warren East, which has included selling under-performing units, stripping out layers of management and plans that will ultimately see almost 5,000 staff leave the business. Rolls-Royce's pensions head, Joel Griffin, said the agreement means "increased security for Rolls-Royce pensioners and reduced risk for our business," with benefits governed by stringent funding requirements.
Mercer, which the article describes as the largest pensions consultancy in the UK, acted as the Trustee's strategic investment adviser for the partial buy-out. James Maggs, Partner at Mercer and lead investment adviser to the Trustee, described the transaction as "ground-breaking" and said the fund's funding surplus reflected "exceptional risk management over a sustained period."
The article contrasts the Rolls-Royce approach with pension offloading by British Steel, which transferred its scheme to the Pension Protection Fund after its takeover by Tata, and House of Fraser, where workers faced pension cuts of up to 10%. Publisher context notes that a separate Rolls-Royce buy-in with Pension Insurance Corporation was later reported at £4.3 billion, so the £4.6 billion figure should be read as the Legal & General transaction described in the primary source.
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