The booming pensions buyout market received a huge boost yesterday as Cable & Wireless struck a record-breaking deal to offload £1 billion of its pension liabilities to Prudential, the insurer.

The telecoms group’s move is the biggest deal of its kind and the largest transfer of pension liabilities from a company to a specialist insurer this year. It tops an agreement struck in February, when Rothesay Life, the Goldman Sachs investment vehicle, bought the assets and liabilities of Rank Group’s £700 million pension scheme.

Analysts immediately said that the move brought a sale or demerger of Cable & Wireless’s British and international businesses dramatically closer. C&W is understood to have explored a sale of its pension scheme several times this year.

Mark James, of Collins Stewart, said: “We see this transaction as easing C&W’s discussions with pension trustees prior to any demerger of the two C&W divisions. In essence, the risks borne by the UK pension scheme have just halved.”

The Times reported in July that C&W trustees were considering offloading £1 billion of its pension liabilities and had compiled an unofficial shortlist of potential buyers. The Pru, which has secured its biggest deal in the bulk annuity market since it struck a £1.7 billion with-profits fund transfer with Equitable Life, is understood to have shaken off competition from Paternoster, Mark Wood’s specialist insurer, and Rothesay Life, to secure the deal.

Companies have been rushing to shed themselves of pension risks for at least a year as market movements reduce the shortfalls in their pension obligations and make it easier and cheaper to sell them on.

Competition from a string of new entrants, including Lucida, run by Jonathan Bloomer, the former head of the Pru, and Edmund Truell’s Pension Corporation, has also increased in the past two years.

Watson Wyatt, the consultant, which advised on yesterday’s deal, said that it meant that £7.5 billion of buyout business had been transacted within the past 11 months.

Steven Dicker, a senior consultant with Watson’s, said it was inevitable that smaller buyouts would kickstart the market as digesting a £1 billion fund was not straightforward.

Under yesterday’s agreement, the Pru will take responsibility for paying the fund’s 5,000 pensioners. It will sell an annuity to C&W that effectively matches liabilities, removing this risk from the fund. In return, C&W will put an extra £10 million into the fund. The C&W scheme’s existing trustees will continue to administer the fund.

C&W retains pension liabilities worth £1 billion covering 9,000 deferred and 1,000 active members.

Steven Haasz, Pru’s corporate solutions managing director, said it had received more than 250 inquiries from companies exploring pension buyouts.

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