The Scheme’s £3.8bn buy-in has been secured in anticipation of a full ‘buy-out’ of the Scheme and will be enabled by a one-off final pension contribution from Asda of approximately £0.8bn ($1.0bn).
Following buy-in, members of the Scheme will be provided with individual annuity policies issued by Rothesay Life, who will then be responsible for paying members' benefits in full. These individual policies will replace the bulk annuity policy and bring about a full scheme buy-out, expected to be completed in late 2020 or early 2021.
At the time of the completion of the buy-out Walmart will recognize a pre-tax charge to earnings of approximately $2.2bn, of which $1.2bn relates to non-cash items1. The transaction will remove all future Scheme liabilities from the Asda and Walmart balance sheets, simplifying the business at a cost which is significantly below the expected future cost of funding internally. The Parties have made the decision to take this step now having agreed jointly that market conditions are favourable and because pension liabilities can be more effectively managed by a large insurer, such as Rothesay Life, given their scale and expertise in this area.
On 31 December 2018, Rothesay Life (A+ rated) had insured 770,000 pension scheme members and had £36 billion in assets under management across their portfolio. Recent transactions have seen Rothesay Life grow to be the largest specialist annuity provider in the UK market.
Roger Burnley, Chief Executive of ASDA, said: “This transaction is an excellent outcome for our Scheme members – and for Asda and Walmart. We have supported the Scheme over many decades through significant cash contributions. That funding, combined with strong stewardship by the Scheme’s trustees, has resulted in the very positive situation where the Scheme can now be transferred to an A+ rated insurance company, Rothesay Life – de-risking the scheme and providing long term, sustainable support for its members.”
Richard Phillips, Chairman of Trustee, said: “This is great news for members. We have had many years of support from Asda and Walmart, and careful management by the Asda pension team with the help of our advisers. Together we have now secured our members’ benefits through Rothesay Life, an insurer which has strong financial credentials and a track record of excellent customer service.”
Richard Mayfield, Executive Vice-President and CFO of Walmart International said: We are delighted to be able to secure the pensions of our members with a leading, well financed insurer such as Rothesay Life. This transaction is good news for members of the scheme, simplifies the Asda balance sheet and will transfer our pension liabilities at a competitive price.”
Tom Pearce, Managing Director at Rothesay Life, said:
“This transaction, with a very well-respected global brand, followed a rigorous selection process. The Asda trustees chose Rothesay Life because, as an annuity specialist, we were able to address the scheme’s complexities and will provide long-term security and market leading customer service for their pensioners.
We are seeing an increasing number of very large schemes, with strong corporate sponsors, looking to insure pension liabilities. These sponsors want to provide security for their pensioners so they can focus on their core businesses. This trend has seen Rothesay Life write a record level of pension business in 2019. We now provide a safe home in retirement for over 800,000 people and manage £56bn of assets.”
In the process of choosing an appropriate insurer and negotiating terms the Trustee Board was advised by Aon, Addleshaw Goddard, Cardano and Lincoln Pensions. Asda was advised by Allen and Overy, PwC and Bath Actuarial Consulting; Walmart by Slaughter and May, PwC and Bath Actuarial Consulting and Rothesay Life was advised by Travers Smith.
1 It is anticipated that the $2.2bn charge to earnings would be an adjustment to earnings per share for Walmart at the time of the completion of the buyout. The amount of the charge will be affected by exchange rate fluctuations.
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