British Airways has signed a deal of £ 4.4 billion in historical pension obligations, insured by Legal and General.
The transaction was concluded to reassure investors of large FTSE 100 listed companies, such as British Airways, about the issue of their high pension liabilities towards former employees.
Nearly 22,000 retirees who have worked for British Airways now have their pensions managed by Legal & General.
Deal: British Airways has signed a deal for £ 4.4 billion of historic pension obligations insured by Legal and General
The airline-sponsored pension scheme said the Legal & General agreement covers about 60 percent of all pensioners' obligations.
For some time, British Airways has been trying to get rid of its image as a company that is under pressure due to the impact of its historic pension schemes.
In December, British Airways, owned by the International Consolidated Airlines Group, announced that it has reached an agreement with trade unions to close its last salary plan and replace it with a new one this year.
Many final pay schemes offered by companies in the past have been concluded in favor of cheaper alternative schemes.
What is a final salary scheme?
A final salary scheme is a type of defined benefit plan offered by employers.
The benefits received on retirement are based on the income and duration of membership of the scheme.
The costs of executing final pay schemes can be very expensive. That is why many companies have phased it out in favor of alternative, cheaper schemes.
Today's deal between Legal & General and British Airways is the largest bulk bond deal ever.
Legal & General, which was founded in 1836, reported £ 500 million in pension risk transfer in the first half of 2018, with British Airways' annuity activity bringing the first quarter sales to £ 5.3 billion.
The bulk annuitity market in the United Kingdom has grown as an increasing number of companies pass on their pension schemes to insurers.
Nigel Wilson, chief executive of Legal & General, welcomed the contract and said that more transactions will be announced in the coming months.
Laura Mason, chief executive of the Legal & General pension institution, added: "We are proud to have been able to realize this pioneering transaction, the largest bulk annuity transaction completed on the UK market.
& # 39; This is a great example of legal and general results for UK companies and their pension participants, so that pension schemes can offer pensioners security when they retire. & # 39;
Record: the deal between Legal & General and British Airways today is the biggest bulk day trading ever
James Mullins, head of Risk Transfer at Hymans Robertson, said: "Old final pay schemes, such as the Airways Pension Scheme, sponsored by Airways, have managers who are responsible for managing the pensions that have been promised to former employees.
& # 39; There is a growing trend for these pension plans to secure these pension commitments with specialized insurance companies, such as Legal & General, rather than trying to manage the commitments themselves.
What is a bulk annuity?
Millions of people have them, but probably can not explain what they are.
Annuities are sold by insurance companies to provide you with an annual income at your retirement when you deposit your pension in cash.
Bulk annuities are purchased by companies that implement final pay schemes to generate an income for their retiring employees.
& # 39; This means that the responsibility for managing pension promises shifts from trustees to insurance companies.
Indeed, Hymans Robertson expects that more than £ 18 billion of pension plans will be insured in this way by 2018 and this amount will increase year by year in the future. & # 39;
Paul DeDath, insurance analyst at Shore Capital, said: & # 39; If the number and size of deals completed in the first half year were a little light of expectations, L & G now has the promise of a second half of the bumper. & # 39;
British Airways has some of the largest pension commitments in Great Britain, with almost £ 24 billion in assets in the previous two schemes at the end of last year.
The shares in British Airways decreased by 0.92 percent or 5.70p to 612.90p, while the share price of Legal & General rose by 0.52 percent or 1.30p to 252.20p.
Obligations: British Airways has some of the largest pension obligations in Great Britain