British Airways has inked a deal with the insurance arm of Goldman Sachs to offload £1.3bn of pension risk in a bid to clear the final hurdle in its merger with Iberia.
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The deal will see the investment bank take on 20 percent of the liabilities to retirees and their spouses, and comes a week after BA said it would accelerate payments to its two benefit pension schemes to help make up their £3.7bn deficit.
The merger agreement between the two airlines hinges on Iberia’s approval of the deficit reduction plan.
The deal with Rothesay, the insurance arm of Goldman’s, has no affect on BA’s pension deficit, but it will cut the risks and volatility the scheme poses to BA.
“The insurance transaction provides protection for longevity risk and provides a direct match for the pension cash flows in all inflation and interest rate scenarios,” BA told the Financial Times.
“The transaction . . . is consistent with the long-term aims of the scheme to reduce the reliance on the employer over time.”
BA joins a growing number of large UK companies in offloading pension scheme risks to specialist insurers in a market that is expected to see between £5bn and £15bn of deals done this year.
Keith Satchell, chairman of Rothesay Life, said the insurer would pass on some of the risk to reinsurers.
“We intend to reinsure some of the risk, but one of our attractions for trustees is as a principal, we are here to take risk,” he said.
Paul Spencer, chairman of the trustees, said they had chosen Rothesay because it had been able to deliver a solution at a pre-agreed price.