Amsterdam, the Netherlands – Royal Philips (NYSE: PHG, AEX: PHIA) today announced that the Trustees of the Philips U.K. Pension Fund have entered into an agreement with Pension Insurance Corporation plc (PIC) to purchase a group annuity contract that will transfer payment responsibility for retirement benefits owed to approximately 26,000 current and former U.K. employees and their beneficiaries. The transaction with PIC will involve the transfer of EUR 2.6 billion* of the Fund’s defined benefit obligations to the insurer.

As part of this transaction, Philips expects to make a final pension contribution of approximately GBP 225 million (approximately EUR 314 million) in cash to PIC in the fourth quarter of 2015. Philips expects to recognize a pension settlement charge that is currently estimated at approximately EUR 314 million before tax, which will be reported within EBITA in the fourth quarter of 2015.

The U.K. Pension Fund’s defined benefit obligations are currently EUR 3.9 billion* in total, which includes EUR 1.3 billion* of defined benefit obligations covered by existing buy-in policies, purchased by the Fund in 2013 and 2014 from different insurance companies.

Philips has given notice to the Trustees of the U.K. Pension Fund to start the process of winding up the Fund. During the wind up of the U.K. Pension Fund, the buy-in policies purchased from PIC and the other insurance companies are converted into buy-out policies. As a result, the settlement of the U.K. Pension Fund reduces Philips’ total defined benefit obligations by EUR 3.9 billion to approximately EUR 4.5 billion.*

This transaction is in line with Philips’ objective to mitigate the company’s financial exposure to its defined benefit pension plans and follows the October 1, 2015 agreements to transfer the U.S. pension plan obligations for a large group of former employees to three insurance companies. 

* Estimated financial numbers according to IFRS accounting and discount rates per November 1, 2015.