Rolls Royce longevity swap restructured as part of record £4.6bn bulk-annuity

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The largest bulk-annuity deal in the UK has been completed by Legal & General and the transaction saw aerospace and engineering firm Rolls-Royce’s pensioner bespoke longevity swap restructured as part of the arrangement.

rolls-royce-imageThe UK £4.6 billion deal secures the pension benefits of around 33,000 members of the Rolls-Royce UK Pension Fund and was effected through a partial buy-in to buyout, backed by a record sized bulk annuity.

Legal and General has previously helped Rolls-Royce back in 2016 to a £1.1 billion buyout for its Vickers Group Pension Scheme, whilst its asset management arm Legal & General Investment Management Limited also manages a significant proportion of the pension fund assets.

Legal & General will ultimately take on responsibility for the administration and payment of the 33,000 pensions once the transaction moves from its initial buy-in stage to a full £4.6 billion buyout.

The transaction saw the restructuring of a longevity swap that the Rolls-Royce pension scheme has benefited from, as well as the transfer of a hedging portfolio to L&G.

Rolls-Royce first entered into a longevity swap for its pension scheme back in 2011, when a £3 billion swap was taken out with the help of investment bank Deutsche Bank.

The longevity risk was offloaded to reinsurance firms, including French reinsurer SCOR for who it was the very first longevity reinsurance deal.

Longevity swaps are increasingly seen as a good stepping stone to a full buyout of a pension scheme, providing the certainty related to longevity risk thanks to access to reinsurance capital, helping a pension gain more certainty over its funding prior to moving to a buyout.

They can be converted through a restructuring approach to become part of a transitional arrangement into full pension fund buyout.

Laura Mason, CEO, Legal & General Retirement Institutional, commented on the deal “Today’s announcement of the Rolls-Royce trustee’s transaction with Legal & General demonstrates the strength and expertise of our team and our ability to handle transactions of all sizes and complexity.

“Working collaboratively with the scheme and its advisors, we can provide the security of insurance, whilst also ensuring that the scheme members benefit from the quality customer service for which the Legal & General group is known.

“The scale of the transaction provides further opportunities for us to invest directly in the UK economy and make a positive difference in our towns and local communities.”

Joel Griffin, Head of Global Pensions & Benefits, Rolls-Royce, added, “We’re delighted to be able to offer greater stability and certainty for the members of the Rolls-Royce UK Pension Fund by protecting the benefits of around 33,000 pensioners for the future through this transaction.

“This would not have been possible without the close collaboration and commitment of our Trustees and advisers over many years, ensuring that the scheme is well-funded.”

Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.

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