Last Thursday morning, British Airways (BA) was able to strike an enormous deal to be able to insure the pension liabilities in the Airways Pension Scheme (APS) of the company that are worth £4.4 billion.
Legal & General, an insurer, will be covering the large pension buy-in. The said buy-in represents the largest ever so-called bulk annuity transfer with a pension scheme in the United Kingdom.
The contract will have L&G agree to pay benefits to a proportion of the members of the said scheme for the rest of their lives.
The deal represents a major move that was initiated by a BA to get to the grips with its large pension obligations which have piled up because of the generous promises that it handed out to its employees in the past.
The scheme closed in the 1980s. It has more than £8 billion worth of assets. the APS said that the deal is set cover approximately 60 per cent of pensioner liabilities.
The chief executive officer of Legal & General, Nigel Wilson, stated: “I’m delighted that L&G has transacted the largest bulk annuity to date in the UK for British Airways’ pension scheme.” said
He added: “We are actively quoting on £27bn of UK pension risk transfer deals demonstrating the strong demand for insurance, supported by increasing affordability, as trustees seek to improve security for members and companies look to remove legacy liabilities.”
BA is among the large firms in the United Kingdom that are weighed down by huge pension deficits. It also has pension obligations in two other schemes that are worth approximately £24 billion.
On Thursday, the chair of the Trustee board of the APS, Virginia Holmes, stated: “Today’s announcement is the culmination of much hard work undertaken over several months and we are pleased to be taking this step in the scheme’s de-risking journey.”