Goldman Sachs Unit Misstates Billions of Pension Derivatives

24 June 2011 (PLANSPONSOREurope.com) – A pensions buyout unit made a big mistake in reporting the value of its derivatives contracts.  

According to Bloomberg that unit, Rothesay Life, mistakenly told U.K. regulators it had entered into derivatives contracts valued at 151 billion pounds ($241 billion).  However, the unit has only 151 million pounds of inflation and interest-rate swaps outstanding, spokeswoman Fiona Laffan said by e-mail, according to the report.  The firm told the FSA about the typographical error after filing in March and wasn’t required to resubmit it, Laffan said.  

That means that the bank overstated its position by a factor of a thousand in its annual return to the Financial Services Authority, signed by the unit’s chief executive, Addy Loudiadis, and audited by PricewaterhouseCoopers LLP, according to Bloomberg.  

Goldman Sachs Group Inc., which set up Rothesay in 2007, manages about 4.3 billion pounds of pensions liabilities for companies including British Airways and RSA Insurance Group Plc. Firms such as Rothesay promise to pay pensions if retirees live beyond a certain age, and they generally receive a portion of the pension plan’s assets in return and try to hedge the risk they take on with derivatives.  

Rothesay has total capital of 161 million pounds, 350 per cent more than the regulatory minimum required by the FSA, according to the filing.  Goldman Sachs also disclosed in the filing it assumes pensioners will live longer than their employers assume. London- based RSA said in 2009 it expected 65-year-old men to live a further 22.5 years on average, while Rothesay, which reinsured the fund the same year, says that these men will live for 25 more years, according to Bloomberg. Rothesay expects a woman aged 45 today to pass their 95th birthday, five years more than RSA’s assumptions.  

PLANSPONSOREurope Staff
editors@plansponsoreurope.com