Page last updated at 11:13 GMT, Wednesday, 3 September 2008 12:13 UK

Pension scheme in 1 billion deal

Cable & Wireless headquarters in London
Cable & Wireless is a leading international telephone company

The Cable & Wireless (C&W) pension scheme has struck a deal with an insurance firm to guarantee the pension payments of its 5,000 pensioners.

C&W has done this by buying a 1 billion annuity from the Prudential, the largest such deal yet seen.

It covers the pensioners of the C&W Superannuation Fund, a UK final salary scheme now closed to new members.

"We have wanted to de-risk the scheme for a while and we were offered very good terms," said a C&W spokesman.

"Win-win"

It is the biggest example so far of a trend that has grown in the past few years for pension schemes to offload some of the risk of providing final salary benefit schemes in the future.

The C&W scheme was fully funded as of its last actuarial valuation on 31 March 2007.

They are still within the pension fund, and have its full support, and on top of that they have the additional security from the Pru
Jonathan Camfield, LCP

Half of its 2bn assets have now been sold to buy the bulk annuity policy from the Prudential, which now guarantees to supply the cash needed to make all the payments expected by the current pensioners.

The scheme still retains ownership of the remaining 1bn of assets which it will continue to invest to pay the pensions of the 9,000 deferred members (staff who have left the company but not yet retired) and the 1,000 employees who are still paying in to the scheme.

"It's a win-win situation for the pensioners" said Jonathan Camfield, a partner at the actuaries Lane Clark & Peacock (LCP), who advised C&W.

"They are still within the pension fund, and have its full support, and on top of that they have the additional security from the Pru," he added.

Less risk

The advantage for C&W and its pension scheme are that the risk of poor investment returns in the future, or of pensioners living longer than expected, have been transferred to the Pru in return for the 1 billion payment.

"There is no question of offloading them [the pensioners] - it's about increasing their security and reducing risk," explained Steven Dicker of the actuaries Watson Wyatt, who advised the C&W pension scheme trustees.

"Instead, the pension scheme will receive payments from Prudential which precisely match what it pays out to pensioners.

"From the members' day-to-day point of view, this is very much business as usual," he added.

The deal does not affect C&W staff who are in two other direct contribution schemes.




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