Rolls-Royce close to $5.37bn UK pension deal

 

Rolls-Royce is reportedly on the verge of finalising a major pension buyout deal that would see it transfer almost £4 billion ($5.37 billion) in pension liabilities to Pension Insurance Corporation (PIC). According to Bloomberg News, the agreement could be announced soon and would mark one of the largest pension risk transfer deals in the UK this year.

The deal would involve PIC taking over responsibility for paying the retirement benefits of certain Rolls-Royce pension scheme members. This would remove a significant liability from the aero-engineer’s balance sheet, freeing up resources and potentially improving its financial flexibility.

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Rolls-Royce has been working on strengthening its finances after years of restructuring and cost-cutting, particularly following the heavy impact of the pandemic on the aviation sector. This buyout could be a key step in reducing long-term obligations and focusing on core operations such as aero-engine production and defence contracts.

If completed, the pension buyout would be part of Rolls-Royce’s broader efforts to streamline its operations and strengthen its balance sheet. By transferring billions in pension obligations to PIC, the company would reduce the financial risks associated with funding long-term employee benefits. This could also improve investor confidence by lowering debt-like liabilities and making the company’s future cash flow more predictable.

Pension Insurance Corporation specialises in taking over corporate pension schemes, using its investment portfolio to ensure benefits are paid over decades. For Rolls-Royce, the move aligns with a strategy focused on improving profitability and meeting ambitious growth targets set under its turnaround plan.

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The potential deal follows a trend among UK corporations seeking to de-risk their pension schemes in a higher interest rate environment, which has made such transactions more affordable. While Rolls-Royce has not officially commented on the report, market watchers say a successful deal could be viewed positively by shareholders and credit rating agencies.

A formal announcement is expected once final terms are agreed, with the transaction potentially setting a benchmark for other large-scale pension transfers in the UK corporate sector.