Legal & General agrees £4.6bn UK pensions buyout deal with Ford

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Legal & General has struck a deal to acquire multi-billion pound pension liabilities from Ford, as the insurer seeks to consolidate its dominant position in the UK’s increasingly competitive pension purchase market.

The £4.6bn deal will cover the retirement savings of 35,000 people and puts L&G on course for the highest deal value this year, despite the arrival of North American players charging more aggressive prices.

The UK pension risk transfer market, where companies pay insurers to meet their financial obligations to pensioners, drives the majority of L&G Group’s revenue, and has attracted private capital giants Apollo and Brookfield Asset Management.

“Pensions risk transfer is our biggest business,” Andrew Kyle, chief executive of corporate pensions at L&G, told the Financial Times. “It’s really important for us to show that we can operate in a very competitive market to secure that.”

The deal with the US carmaker is spread across two of Ford’s UK pension schemes – the Ford Hourly Contribution Pension Fund and the Ford Contribution Pension Fund. Such deals benefit retirees by providing greater security for their retirement income even if their former employer experiences financial difficulties.

Jonathan Wood, chairman of Ford Pensions’ board of trustees, said he was “pleased to achieve this important milestone in reducing risk and providing greater security for our members”, having worked on the deal “for many years”.

Companies including NatWest and Rolls-Royce have sold part or all of their defined benefit schemes to insurers in record amounts in recent years as funding levels for these schemes improved after a rapid rise in government borrowing costs reduced the value of future liabilities.

At the same time, the potential for lucrative deals has attracted more players to the rebuilding teams market. Atura, an Apollo-backed insurer, in July announced plans to buy the pensions insurer, which was followed later that month by Brookfield agreeing to a £2.4bn deal for life insurer Just Group.

That month, L&G also entered into a private credit partnership with Blackstone, in which the US alternative assets group will source deals for the FTSE 100 company’s annuities business. Blackstone said the partnership could be worth $20 billion by the end of the decade.

L&G did the deal because it “has the ability to generate investment-grade credit in the U.S. better than we can, and that’s really important,” Kyle said.

In addition to the Ford deal, L&G has more than £10bn worth of PRT transactions in the UK that have either completed or are the subject of exclusive talks this year, slightly higher than analysts had expected.

Consultants expect UK companies to conclude between £40bn and £50bn in RRT transactions annually over the next five years, although ratings firm Fitch said last month that the value of deals this year could fall to around £40bn, from £48bn in 2024.

This is partly due to fewer large deals being concluded, while intense competition and tight credit spreads – the narrow gap between corporate and government borrowing costs – have reduced the profits available to transaction insurers.