C&W offloads £1 billion of pension fund burden to Pru

Telecoms giant Cable & Wireless today offloaded £1 billion of its pension fund liabilities in a deal with Prudential.

The move, the biggest of its kind, sparked speculation that C&W is edging closer to its plan to demerge its UK and overseas businesses and even prompted some analysts to suggest it has become a more attractive takeover prospect. C&W shares fell 2.9p to 176.2p.

In effect what C&W has done is to take out an insurance policy with the Pru that guarantees all future payments to the 5000 existing pensioners in its long-closed final-salary pension scheme.
In technical terms C&W's pension fund has bought an annuity policy from the Pru which matches its pensioner liabilities. It has handed over cash, bonds and other financial assets worth just over £1 billion to the Pru, which is effectively a single insurance premium. C&W had to pay just £10 million to top up the pension scheme and in return sees £1 billion of liabilities taken off its hands.

It is the first such buy-in by a company pension fund to top £1 billion. Some £7.5 billion of such deals have been completed in the past 11 months. C&W's 5000 pensioners should see absolutely no change to their income or rights.

Tony Rice, finance director, said: "The transaction materially reduces the fund's exposure to liabilities by £1 billion. It also materially reduces the fund's and shareholders' exposure to the future risk of adverse changes in actuarial assumptions and investment returns."

But the cost of buying in annuities for the remaining £1 billion of assets in the investment fund which are shared between 9000 deferred pensioners and 1000 existing employees would have been prohibitively expensive.

Prudential won the business in a pitch between it, Legal & General and Mark Wood's specialist insurer Paternoster. Paternoster had held the record for the biggest deal after it wrote an £800 million bulk annuity contract for the P&O pension fund.