A wave of British companies are expected to sever all ties with their pension funds after the milestone decision by Emap yesterday to sell its pension fund to the specialist insurer Paternoster.

Mark Wood, the founder of Paternoster and former UK chief of Prudential, said the trend was beginning to take off and predicted that £2 billion of UK pension assets would be bought out before Christmas.

Emap, the publishing and radio group, is the largest UK listed company so far to choose to hand over the assets and responsibility for the liabilities of its two in-house pension funds to a third party.

Paternoster beat half a dozen rivals, including Legal & General, Prudential and Metropolitan Life of New York. Emap first topped up the pension funds with £40 million as the price of getting them off its hands.

The pension fund disposal makes Emap’s sell-off plans easier. It is in the process of auctioning off its entire operations in three parts, covering consumer magazines, radio and professional publishing and information.

However, Ian Griffiths, Emap’s finance director, said that the decision was not exceptional. The disposal was “something that we would have done anyway”, with the added advantage that Paternoster “had taken on all the risks” that could have derailed a sale.

Bidders had earmarked at least £50 million to top up the pension fund and Emap shares added 16½ to 856p yesterday, although there was fresh talk about worries over the company’s tax liabilities. Emap said it had received “good interest”, with indications that eight bidders were chasing its business-to-business division, and six were examining its radio arm.

Many other companies want to end the relationship with their defined-benefit pension funds because of the uncertainty created by volatile share markets and rising longevity.

The deal is the biggest for Paternoster, which was set up specifically to conduct pension buyouts. It boosts its pension assets by £170 million to £750 million.

Mr Wood said that Paternoster had already clinched three other deals with funds averaging £150 million in size, but was restricted by the fund trustees from announcing them yet. “We really think the market is about to take off. From the quotations we’ve been asked for, we reckon the market this year will be around £5-6 billion, or four times the size of last year.”

Paternoster, which has also bought out small pension funds sponsored by Fiat and Texaco, will have responsibility for managing the assets and paying the pensions of 1,700 current and former employers of Emap and its subsidiary Scottish Radio Holdings.

Mercers, the actuaries advising both Emap and the trustees, said that the deal was good for the company and fund members. Before the £40 million injection, the schemes had deficits of £8 million on a conventional accounting basis and of £77 million on the much more conservative buyout basis.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive