Boots offloads £4.8bn pension scheme to Legal & General

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Boots has agreed to transfer £4.8bn of pension obligations to insurer Legal & General in a deal that paves the way for a potential sale of the UK’s largest pharmacy chain by owner Walgreens Boots Alliance.

The FTSE 100 insurer will take on the assets and liabilities of the scheme, which covers 53,000 current and future retirees, in one of the largest-ever such transactions in the UK.

By offloading the pension liabilities, Boots has removed one obstacle to Walgreens selling the business. Last year, the US company abandoned an attempt to sell the chain, pointing to an “unexpected and dramatic change” in market conditions. 

The L&G transaction came on the same day that Rothesay, a UK life insurer, agreed to take on £4bn of the pension liabilities of the Co-operative Group, whose operations span supermarkets to funeral services.

When it abandoned the Boots sale last year, Walgreens said that while there had been “significant interest”, bids for the 174-year-old company had failed to reflect its potential value.

Some prospective acquirers were put off by the complications of a large defined benefit pension scheme, for which a new owner would have become responsible. 

Rosalind Brewer, Walgreens’ former chief executive, at the time signalled that the company would consider other deal options. It would “stay open to all opportunities to maximise shareholder value,” she said.

Brewer stepped down abruptly in September after two-and-a-half years in the post. She was replaced by healthcare industry veteran Tim Wentworth.

Boots said it would bring forward approximately £170mn of already committed payments to the pension scheme and has agreed to pay extra contributions worth about £500mn.

Alan Baker, chair of trustees for Boots’ pension scheme, said the deal “gives added protection to our members’ long-term benefits by removing market uncertainty and other financial exposures”.

Demand for UK pension deals is booming as companies aim to rid themselves of legacy schemes. Rising interest rates have made it more affordable for employers to offload their schemes and this is expected to be a record year for deal making.

The benign conditions mean that the scale of the deals is also rising. Insurer RSA agreed to offload £6.5bn of its liabilities earlier this year, the biggest overall transaction in the UK so far, while the Financial Times reported in July that BP was in talks over an insurance deal for its £30bn pension scheme.

L&G said that it had written £13.4bn of pension transfer business globally so far this year. “We are continuing to see an unprecedented acceleration in demand in this sector, driven by more pension schemes being closer to buyout than ever before,” said Andrew Kail, chief executive of L&G’s institutional retirement business.

The Co-op’s director of pensions Gary Dewin said its deal reduced the company’s exposure to future funding risks and helped strengthen the Co-op “for the benefit of our members”.


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