UK company shares lifted by pension insurance deals


17 Jun, 2020

UK company shares lifted by pension insurance deals

The majority of London-listed companies that moved pension obligations to insurance companies witnessed an increase in share prices by up to 3% more than other firms in the sector.

According to a report published by consultants Mercer on Wednesday, two-thirds of over 70 companies which transferred all or part of their defined benefit pension schemes to an insurer since 2007 saw their share prices jump.

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

The increase in share price varied from 0.25%-3%, and was inclined to rise over the six-month period, the report revealed. 

“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 studied by Mercer amounted to £90 billion, with 48 of them for companies in the FTSE 100 index.

Two-thirds of British company pension schemes are currently in deficit, following years of low interest rates which had pushed down investment income.

What are referred to as bulk annuity deals, provide companies with the ability to wipe their balance sheets of the pension funds, which can limit merger activity. However, many companies cannot afford them. 

In 2019, bulk annuity deals reached a record volume of £44 billion. The figure is forecast to be lower this year, however. 

Legal & General said on Tuesday it expected to have completed £3.4 billion in deals by the end of June, and referred to a pipeline amounting to a further £25 billion. 

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