When UK Firms Transfer Pension Obligations to Insurers, They See Share Boost: Report

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Most London-listed companies that transferred pension obligations to insurance companies saw their share prices rise by up to 3% more than sector peers in the six months after completing the deals, a report showed on Wednesday.

Two-thirds of the more than 70 firms which transferred part or all of their defined benefit pension schemes to an insurer since 2007 saw a share price lift afterwards, the report by consultants Mercer said.

Pension payments in a defined benefit scheme are based on an employee’s final salary before retirement.

The share price rise ranged from 0.25-3% and tended to increase over the six-month period, the report showed.

“Defined benefit plans in some cases can be a drag on a company, to remove some of those elements is probably a positive,” said David Ellis, UK head of bulk pensions insurance at Mercer.

The deals surveyed by Mercer totalled 90 billion pounds ($114 billion) and 48 were for companies in the FTSE 100 index.

Two-thirds of Britain’s company pension schemes are in deficit, following years of low interest rates which have slashed their investment income.

So-called bulk annuity deals enable companies to rid their balance sheets of the pension funds, which can be a deterrent to merger activity, but many companies cannot afford them.

Bulk annuity deals hit a record volume of 44 billion pounds last year, though 2020 is expected to be slower.

Legal & General, one of the biggest players in the market, said on Tuesday it expected to have completed 3.4 billion pounds in deals by the end of June and was quoting on a pipeline totaling a further 25 billion pounds.

($1 = 0.7904 pounds) (Reporting by Carolyn Cohn; editing by Edmund Blair)