Rolls-Royce offloads one-third of its pension scheme to Legal & General in landmark £4.6bn deal

BERLIN - AUGUST 23: Workers assemble an aircraft jet engine August 23, 2006 at the Rolls-Royce aircraft engine factory in Berlin, Germany. The factory, a greenfield project built in 1993 in what was East Germany before 1989, produces jet engines for aircraft makers including Airbus and Boeing. The plant's production is also typical of the high-tech exports that make the Germany the world's biggest exporter. (Photo by Sean Gallup/Getty Images)

Rolls-Royce has handed over responsibility for £4.6bn of its pension scheme to Legal & General, in a record-breaking deal.

The FTSE 100 engine manufacturer has offloaded responsibility for paying the pensions of its 33,000 pensions scheme members. The scheme has a total of 76,000 members.

Legal & General takes on around one-third of the pension scheme’s assets in the deal, known as a pension buyout.

Rolls-Royce pensions boss Joel Griffin said today’s deal would offer “greater stability and certainty” for its workers.

Legal & General Retirement Institutional CEO Laura Mason said: “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.”

A booming market

Bulk annuity buyouts are rising sharply, and are heading for a record year in 2019. The market was worth £25bn last year, while consultant Willis Towers Watson expects deal values to hit £30bn this year. Today’s deal, meanwhile, represents more than one-third of the value of the whole market in 2017, of just £12bn. In September last year, British Airways announced a similar £4.4bn deal with Legal and General.

The insurer also did a similar deal with Rolls-Royce in 2016, completing a £1.1bn buyout for the pension scheme of Vickers Group – a subsidiary.

Rolls-Royce has been battling to get a grip on its balance sheet in recent years. Issues with one of its flagship engines, the Trent 1000 model, have grounded jets across the globe. The engine powers Boeing’s 787 Dreamliner. Fixing the problems have been costly for the manufacturer.

The engineer said in its full-year results in March that its UK pension fund had £12.8bn assets and a £1.9bn surplus. Meanwhile, its overseas pension plans had a £1.3bn deficit.