The BAA Pension Scheme, the defined benefit (DB) provision for 1,300 Heathrow employees, has signed a £325m buy-in with Legal & General, accompanied by the issuance of a £160m corporate bond.
The bond, which was issued by the scheme’s sponsor Heathrow Ltd, features an index linkage which switches from RPI to CPI. It will be added to Legal & General’s annuity book and is aimed at strengthening the sponsor’s long-term financing platform whilst helping to de-risk the scheme’s legacy obligations.
Phil Wilbraham, trustee chair, said: “I am delighted with the completion of this innovative transaction with Legal & General, which at the same time de-risks the position of our scheme members, enables Heathrow to strengthen their financing position ahead of our airport expansion and provide access to competitive financing for the benefit of passenger and airline customers.”
Andrew Ward, head of risk transfer at Mercer and lead adviser on the bulk annuity transaction, adds: “By working closely with Legal & General and Heathrow, the scheme has secured attractive pricing and a robust contract. This continues the positive steps taken over recent years to reduce risk in the scheme and improve the security of members’ benefits.”
As of September 2015, the scheme had £3,3bn in assets and a deficit of £228.1m, bringing its funding level to 94%. The next valuation of the scheme’s assets and liabilities will be due towards the end of this year.
