C&W and Pru sign annuity deal to protect employee pensions

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A safety net was thrown around the pensions of more than 5,000 retired employees of Cable & Wireless yesterday after the mighty Prudential insurance company struck a £1bn deal to guarantee all future payments.

In a transaction which many large employers are likely to find increasingly attractive, the telecoms group Cable & Wireless has agreed to transfer all futureliabilities of its final salary superannuation fund to Prudential.

Under the agreement, half of the fund's £2bn assets – largely in shares – are being sold in order to buy a bulk annuity from Prudential which will provide payments to match what the fund pays out to the pensioners.

The annuity policy will generate a premium income of around £100m a year for Prudential.

More UK firms are looking at ways of offloading their pension liabilities, which are becoming increasingly difficult to predict amid volatile stock markets and with people living much longer. Although the C&W fund was fully funded at its last valuation in March 2007, the firm has no guarantee that the position would not change, requiring it to inject large sums in top-up payments.

Tony Rice, finance director of C&W, said: "The transaction materially reduces the fund's exposure to liabilities by over £1bn. It also materially reduces the fund's and shareholders' exposure to the future risk of adverse changes in actuarial assumptions and investment returns."

Under the deal, C&W is itself chipping in £10m to the fund.

The previous largest transaction of this kind was between the P&O pension fund and insurer Paternoster in December 2007. Prudential is discussing similar agreements with other clients.