Last updated: December 7, 2012 11:38 pm

Tate & Lyle pensions deal with L&G

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Trustees of the main Tate & Lyle final-salary pension scheme have agreed a £347m deal with Legal & General to reduce its risk exposure.

In the latest example of a UK company seeking protection from the volatility of costly pension promises, the FTSE 100 sugar and starches maker said Friday that its pension trustees had agreed to a “partial pensioner buy-in” for the defined-benefit scheme.

A buy-in in effect entails the purchase of an insurance policy covering the benefits due to a selection of pensioners – a move that partly insulates the sponsoring company from the threat of ballooning pension deficits.

Companies that have already arranged pensioner buy-ins include Cookson, the materials science group, and Home Retail, owner of the Argos store chain. Last November, the pension fund of defunct asbestos maker Turner & Newall completed a £1.1bn deal with L&G.

In Tate & Lyle’s case, the buy-in involves the transfer of £347m of cash and assets from the scheme to L&G, which in return is issuing a bulk annuity policy that will cover payments to three out of seven of the scheme’s pensioner members.

Tim Lodge, Tate & Lyle chief financial officer, said: “This transaction is an important step in our strategy to work with our schemes’ trustees and fiduciaries to reduce pension risk on a phased basis.”

The company said benefits to members of the scheme would not be affected by the deal, nor would it affect Tate & Lyle’s cash flows or adjusted earnings.

L&G said the transaction was the largest it had undertaken so far this year, and the bulk annuity for Tate & Lyle would continue to pay out until the death of the last pensioner covered by the scheme.

Tom Ground, head of L&G’s bulk purchase annuity and longevity insurance division, said the first half of 2012 had been a quiet one for such transactions but activity had picked up in the second half and would be likely to continue to do so in 2013.

“Next year is looking set to be very busy; there are several transactions in excess of £1bn in the pipeline,” he said.

He added that the issue of final-salary, or defined-benefit, pension liabilities was not confined to blue-collar engineering firms – retail banks and investment banks also have considerable exposure. “The total defined-benefit liability in the private sector alone has been put at £1.6tn,” Mr Ground said.

Other providers of bulk-purchase annuities include Prudential, the private equity-backed Pensions Corporation, and Rothesay Life, a unit of investment bank Goldman Sachs.

Shares in Tate & Lyle rose 0.3 per cent to 759p on Friday. They have risen 13 per cent over the past year.

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