Boots offloads £4.8bn pension scheme to Legal & General

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

The UK insurer will take on the assets and liabilities of the scheme, which covers 53,000 retirees, in a deal that Legal & General says is the largest single transaction of its kind by premium size.

The transaction could clear the way for Boots to be sold after its US owner abandoned plans to offload it last year, blaming an “unexpected and dramatic change” in market conditions. 

Walgreens Boots Alliance said at the time that while there had been “significant interest” in the 174-year-old business, no offers had been received that reflected 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 abruptly stepped down 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.

Legal & General said on Friday that it had written £13.4bn of pension transfer business 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 Legal & General’s institutional retirement business.