A plan by Cable & Wireless to sell its £2 billion pension fund has been thwarted by the high costs involved.

The telecoms group has told investors that the cost of offloading the scheme’s liabilities meant that the plan is unlikely to go ahead in the near future.

Companies including Paternoster, the specialist insurer, have created a new industry for taking on company pension schemes. They hope that their investment expertise will enable them to make money out of the schemes.

The buyout group takes on full ownership of the scheme and responsibility for paying the members. Companies are commonly required to inject a one-off lump sum before relinquishing ownership.

Last month Emap, the publishing and radio group, paid £40 million to have its schemes taken off its hands by Paternoster. Pensions experts calculate that C&W, whose final-salary scheme has about £2 billion of liabilities, would have to pay between £300 million and £500 million to achieve a similar deal.

A C&W spokesman insisted it was something that the group continued to examine: “We are actively managing our pension fund. That means that we, along with the Pension Trustees, talk to advisers all the time. It doesn’t mean that a pension fund transaction will happen.”

Mark Wood, at Paternoster, said: “The sale of a very large scheme like C&W’s will take a long period to get organised.”

John Ralfe, an independent pensions consultant, said: “The question, with a scheme of this size, is whether it is just too big for a market which is underdeveloped, to pull off.”

Analysts have been focused on C&W’s pension plan talks because of their potential to hasten the telecom group’s planned demerger of its UK and international businesses. The company has been working to transform the fortunes of its UK business ahead of a demerger, and its recent interim results revealed good progress.

The UK turnaround was ahead of C&W’s expectations, with full-year earnings before interest, tax, depreciation and amortisation expected to be between £205 million and £215 million – a £35 million improvement from previous guidance.

However, a demerger or sale could be held up by concerns around the 15,000-member fund. Analysts at Dresdner Kleinwort wrote recently that the company’s focus on “reducing the risk” around the pension scheme was one of “two crucial issues that suggest the demerger is firmly on the cards”.

Emap’s disposal of its pension fund facilitated its sell-off plans. It is in the process of auctioning off its entire operations in three parts – radio, consumer magazines and professional publishing. The group was the UK’s largest listed company to hand over the assets and responsibility for its two in-house pension funds to a third party.

Hopes of a pension sell-off being achieved at C&W were raised at the company’s November results when it said it had brought forward by one year its triennial valuation, to “provide up-to-date information for further risk management decisions”.

However, the results of that review will not be available until May, the company said.

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. Paternoster has also bought out small pension funds sponsored by Fiat and Texaco.

— Millions of workers who switch jobs before they retire could lose thousands of pounds a year from their pensions under proposed changes in the Pensions Bill, which received its first reading in Parliament yesterday. The Government said it will reduce benefits attached to final-salary schemes, of which about 5 million Britons are members. It has ignored advice from experts who warned that workers could be worse off under the changes.

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