P&O’s £800m pensions deal

Paternoster, the privately owned pensions insurer, has agreed to fund the pensions of 11,000 former employees of P&O, the shipping group owned by Dubai’s DP World, in an £800m deal thought to represent one of the UK’s biggest transfers of retirement benefits.

Corporate pension schemes are increasingly looking to insurers such as Paternoster to help manage the risks associated with final salary pensions. These include increasing life expectancy, which is driving up the cost of pension provision, as well as financial risks such as inflation or stock market volatility.

Under the deal with P&O, Paternoster has contracted to provide the future pension payments of the company’s existing pensioners. Meanwhile, P&O will continue to provide for the future benefits of the 6,000-odd scheme members who have yet to retire.

P&O will deliver about £800m of its bond portfolio to Paternoster in return for its assuming the pension liabilities.

In effect the transaction means P&O will swap the income stream it would have received from the bond portfolio – and used to pay the pensions – for an income from the Paternoster annuity. At the same time, it allows P&O to retain overall control of the pension scheme.

The deal is thought to be the largest transfer of corporate pension liabilities in the UK, although as not all transactions are announced there are no comprehensive data.

Rita Powell, P&O’s group head of pensions, said: “This is excellent news for the P&O pension scheme as it now has the added security of a specialist regulated insurance company, and this is in addition to the ongoing support of a strong global company in P&O Steam Navigation.”

P&O’s pension trustees are thought to have rejected a transfer of the entire scheme to a pension insurer – known as a pensions buy-out – because they believed members would want the scheme to remain under P&O control. Other solutions, such as purchasing derivatives from investment banks, were rejected since they could manage only financial risks and not risks to do with life expectancy.

The P&O scheme was in deficit when DP World acquired the company last year. However, regular payments have taken the scheme to a well-funded level, according to a person familiar with the scheme.

“Under the bulk annuity policy, the trustee will receive money each month from Paternoster in much the same way that any other investment held by the trustee provides income,” the trustees wrote. “Members should rest assured that benefits are not being bought out.”

Source:RamblerNews