Pension insurance deals boost UK company shares by up to 3%, says report

LONDON (Reuters) - Most London-listed companies that transferred pension obligations to insurance companies saw their share prices rise by up to 3% more than sector peers in the six months after completing the deals, a report showed on Wednesday.

FILE PHOTO: The Canary Wharf financial district is seen from Greenwich Park in London, Britain, May 7, 2019. REUTERS/Hannah McKay/File Photo

Two-thirds of the more than 70 firms which transferred part or all of their defined benefit pension schemes to an insurer since 2007 saw a share price lift afterwards, the report by consultants Mercer said.

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

The share price rise ranged from 0.25-3% and tended to increase over the six-month period, the report showed.

“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 surveyed by Mercer totalled 90 billion pounds and 48 were for companies in the FTSE 100 .FTSE index.

Two-thirds of Britain’s company pension schemes are in deficit, following years of low interest rates which have slashed their investment income.

So-called bulk annuity deals enable companies to rid their balance sheets of the pension funds, which can be a deterrent to merger activity, but many companies cannot afford them.

Bulk annuity deals hit a record volume of 44 billion pounds last year, though 2020 is expected to be slower.

Legal & General LGEN.L, one of the biggest players in the market, said on Tuesday it expected to have completed 3.4 billion pounds in deals by the end of June and was quoting on a pipeline totalling a further 25 billion pounds.

Reporting by Carolyn Cohn; Editing by Edmund Blair