British Airways (BA) has offloaded much of the risk in the smaller of its two huge defined benefit (DB) pension schemes, after the Airways Pension Scheme (APS) agreed a £4.4bn (€4.9bn) buy-in with Legal & General – the largest pensioner bulk annuity transaction ever seen in the UK.

The APS and Legal & General said the bulk annuity buy-in would cover around 60% of all the scheme’s pensioner liabilities.

Virginia Holmes, chair of the APS Trustee, said: “Today’s announcement is the culmination of much hard work undertaken over several months and we are pleased to be taking this significant step in the scheme’s de-risking journey.” 

She said the contract – the latest in a number of insured arrangements the scheme had entered into – showed “the vision and determination of the trustee to reduce risk and increase security for members”.

The deal includes about £1.7bn of existing longevity reinsurance contracts that the scheme went into via a captive insurer with Canada Life Reinsurance and PartnerRe a year ago.

The parties said APS was now 90% hedged against all longevity risk, following the buy-in and allowing for previous pensions insurance deals.

PwC acted as lead transaction advisers for the APS Trustee, which was also advised by Allen & Overy, Eversheds Sutherland and Willis Towers Watson.

Legal & General was advised by Clifford Chance.

Nigel Wilson, chief executive of Legal & General Group, said the second half of 2018 was likely to be a record six months for his company’s pension risk transfer (PRT) business, and that it expected to announce more deals in the next few months. 

“We are actively quoting on £27bn of UK PRT deals demonstrating the strong demand for insurance, supported by increasing affordability, as trustees seek to improve security for members and companies look to remove legacy liabilities,” he said.

Ben Stone, pensions director at PwC said that completing a transaction as large as the APS deal in what is the busiest ever year for pension buy-ins showed that the market was working well.

Meanwhile, consultancy Hymans Robertson commented as an outsider to the deal, saying it expected the trend of bulk annuity mega-deals to continue into 2019.

“We also expect other pension schemes who have previously put in place a longevity swap to look to convert these into a buy-in as the pricing for conversion is attractive,” said James Mullins, partner and head of risk transfer at the firm.

BA’s APS covers nearly 22,000 pensioners of the formerly state-owned UK national carrier.

The scheme, which had assets of £7.6bn at the end of March this year, was originally set up back in 1948 and closed to new members in 1984.

It is second in size to BA’s subsequent DB scheme, the New Airways Pension Scheme (NAPS).

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