BMW Looking to Transfer UK Pension Liability

February 1, 2010 ( - BMW is in talks to offload more than £2.5bn of longevity risks from its UK pension scheme.

The Financial Times reports that Abbey Life, Deutsche Bank’s specialist unit, and Paternoster, the pensions buyout business set up by former Prudential executive Mark Wood, are negotiating the deal and hope to pass on much of the risk to specialist reinsurers. Final contract terms have not been settled and scheme members have not been notified, but it is hoped a deal can be announced this month, according to people familiar with the situation, the news report said.

According to the Financial Times, BMW would not confirm the talks but said: “The longevity hedge would simply make it easier for the company to budget for future pension payments and therefore make scheme funding more secure overall, which of course benefits everyone in the scheme.”

The pension offloading trend has grown in the U.K. since 2007 when Paternoster was one of the first firms to enter the pension buyout market (see Is Sponsorship Transfer Next Frozen DB Plan Solution?).

The Financial Times said the BMW deal would be a first for Deutsche Bank, though it was indirectly an early entrant in the market through its 40% ownership of Paternoster, which has been closed to new business since last April after it was hit hard by the financial crisis (see U.K. Pension Buyout Business Cut by Financial Crisis).

Deutsche is using Paternoster to help structure and price longevity deals. Neither firm commented on the BMW deal, according to the news report.