26th Jun 2009 07:00
26 June 2009
Babcock International Group PLC
Pension Liabilities Cap
Following agreement in principle reached at the time of its preliminary results announcement on 12 May 2009, Babcock International Group PLC (the Group) today announces that the trustees of its Devonport Royal Dockyard Limited defined benefit pension scheme (the Scheme) have entered into a contract with Credit Suisse to cap their exposure to the effect of increasing life expectancy on pensions in payment.
The exposure has been capped by the use of longevity swaps whereby the Scheme will receive payments from Credit Suisse should the members and dependents covered live beyond a pre-defined age. The Group has agreed to fund the net present value of the swap premium over a 20 year period. There will be no material impact on the Group's income statement, balance sheet or cash flow as a result of this transaction, other than as a result of future earnings and cash protection afforded by the swap.
By entering into this arrangement, which is the first transaction of its type by a UK company-sponsored pension scheme, both the Group and the pension scheme have ensured that any further financial risk related to improved mortality has been eliminated for the members covered.
At 31 March 2009 the Group's defined benefit pension liabilities and assets each valued at approximately £1.7 billion yielded a net balance sheet surplus of £52 million. Approximately £800 million of the liabilities were in respect of pensions in payment and in this, the first of three proposed transactions, c £300 million of this amount has been capped by the use of longevity swaps. The final transactions to cap a further £450 million of the longevity risk in pensions in payment liabilities are expected to be completed by the end of September 2009.
Enquiries:
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Babcock International Group PLC
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020 7355 5300
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Bill Tame
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Group Finance Director
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Andrew Birkett
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Group Pensions Manager
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Terri Wright
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Head of Investor Relations
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Financial Dynamics
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020 7269 7291
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Andrew Lorenz
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Sophie Kernon
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