ITV has moved to offload the risk associated with its huge pension fund deficit in a £1.7bn deal with Credit Suisse.
The complex transaction will add £50m to ITV’s pension-deficit, last valued at £312m. It has been designed so ITV can protect itself against current and former workers living longer than expected.
The broadcaster has agreed a longevity swap that will see it make fixed monthly payments to the bank in return for funding to broadly match the value of benefits paid out. It means the scheme is effectively locking itself into a pattern of payments that could be higher than the value of the pension fees, but are insured against people in the scheme living significantly longer than expected.
Ian Griffiths, ITV finance director, said: “Over the last couple of years, ITV has made significant progress in strengthening its balance sheet and managing its pension risk. This latest initiative is a further significant step in reducing the exposure of our business to legacy pension risk.”
The fixed payments currently have a value of about £1.7bn, making it the third-largest risk transfer involving a UK pension scheme, according to Towers Watson, which advised the ITV trustees.
It said the deal, which begins immediately, covers benefits due to nearly 12,000 retired members. It is not due to have any effect on the size of the pensions paid to members.
Graham Parrott, chairman of the ITV pension scheme trustees said: “By removing a significant risk from the pension scheme, this contract enhances the security of all members’ benefits and dovetails with the other steps we have taken to achieve that goal.”
Only a small number of longevity only transactions have been agreed in British business.
JP Morgan analysts said in a note: “We see this as a positive in that it limits ITV’s risk on its sizeable pension liabilities.”
The broadcaster was advised by PricewaterhouseCoopers and Hogan Lovells, while the trustees were advised by Towers Watson, Sacker, Mercer and Penfida.
MEET THE ADVISERS: TOWERS WATSON
The ITV pension scheme trustees were advised by Paul Kitson, a senior consultant at Towers Watson.
He has more than 10 years’ experience working on corporate pension plans and has more recently advised on transferring liability to banking and insurance counter-parties.
Last year he led the £1.3bn synthetic bulk annuity deal between British Airways and Rothesay Life, the insurance company owned by Goldman Sachs.
In 2009 he led the Merchant Navy officers’ pension fund’s £500m bulk annuity deal with specialist insurance company Lucida.
Yesterday he said: “Typically, pension schemes expect today’s pensioners to live two or three years longer than they budgeted for a decade ago.
“Longevity swaps allow schemes to make one further adjustment and then nail down what they will be paying out. Because the payments stretch so far into the future, arrangements for posting collateral are essential. A good governance structure is needed to make this work.”