Goldman Sachs makes first pension buyout

Goldmans Sachs has made its first foray into the growing pension buyout market through its wholly owned subsidiary Rothesay Life, which has agreed to take on the pension assets and liabilities of Rank Group.

Rank, the second largest UK casino and bingo company, has a final salary pension scheme with around 19,000 members and a fund size of £700m (€914m), making the transfer the largest pension buyout to date by an insurance company.

The transaction was agreed following a competitive process arranged by investment consultancy Mercer, which acted both as broker for the deal and as actuarial and investment adviser to the scheme trustees. HSBC Actuaries and Consultants advised Rank as the employer and sponsor to the pension plan.

David Ellis, principal at Mercer, said Goldman beat off competition from more than 10 other providers and investment banks offering longevity swaps.

He said: "Our client wanted bulk annuities from a regulated life insurer."

The deal will secure in full the accrued benefits for scheme members and will remove all Rank's remaining financial risks and liabilities relating to the scheme - including the cost of rising longevity.

Upon completion of the transfer, which is anticipated in June following clearance from the tax authorities, Rank also expects to receive a cash payment of at least £20m.This represents the company's allocation of the expected surplus within the pension plan after an appropriate sharing with the pension plan members and any anticipated costs—including tax—associated with the transfer. The cash payment will be used to reduce group borrowings.

Peter Gill, finance director of Rank, said: "With the financial benefits that this transfer provides, Rank will be better placed to address its near-term challenges and to grasp its long-term opportunities. In addition, members of the pension plan will benefit from the high level of security provided by Rothesay Life."

Goldman Sachs registered Rothesay Life with the Financial Services Authority last July after hiring two executives from UK insurance company Friends Provident.

Keith Satchell, formerly chief executive at Friends, has become chairman of Rothesay Life, and David Jackson, who was group finance director at the insurer, joined Goldman Sachs as a non-executive director. Addy Loudiadis, the bank’s former co-head of European investment banking, is Rothesay's chief executive.

Loudiadis said: "The market for insurance based buyouts of large pension schemes is developing rapidly. Companies and trustees are increasingly looking for effective solutions to transfer pension liability risk to specialist insurance providers."

According to research by pension consultants Aon, the value of assets transferred to pension insurers more than doubled to £1.9bn in the final three months last year, with the value of potential new deals rising to more than £40bn. Completed deals include ferry group P&O, oil exploration group Lasmo and engineering firm Weir Group.