Manweb, the ScottishPower subsidiary, has done a £1billion deal to control the costs of its pension scheme.
The “longevity swap”, an insurance against pension scheme members living ever longer, has been agreed by the utility company’s lead advisers Mercer with Abbey Life Assurance, now part of Deutsche Bank.
It covers 4000 members of the Manweb group of the Electricity Supply Pension Scheme.
The swap, a tri-partite insurance policy between the Electricity Pension Trustee, the company scheme trustee, and Abbey Life, “will hedge against the risk of rising costs as a result of the current pensioners of the group living longer than expected”, Mercer said.
Andrew Ward, head of longevity risk management at Mercer, commented: “We worked closely with the trustees to achieve a successful outcome for all parties, thus allowing the group and ScottishPower to continue to reduce the long term volatility of their pension costs in an efficient manner - an approach that is encouraged by Ofgem, the UK energy regulator.”
Mr Ward added: “Longevity risk is a significant risk for defined benefit schemes and is more significant than ever in the historically low-yield environment. As part of this transaction, we have managed a highly competitive pricing process to remove this long-term risk at an attractive cost demonstrating that substantial risk management is still possible post-EU referendum...We expect to see significant longevity risk management activity in 2016.”
Graham Wardle, chairman of BESTrustees, said: “Rising life expectancy has led to significant increases in UK pension scheme liabilities over the past couple of decades. By implementing this longevity swap, the group has taken a major step in removing this risk in the future.”
In March, Johnston Press booked 70 per cent reduction in its £90m pension liabilities following a study of health, gender and longevity.
Last September Heineken paid Aviva £2.4bn to take on the longevity risks of 19,000 members of the Scottish & Newcastle Pension Plan, the final salary scheme that Heineken took over in the 2008 acquisition of S&N, and closed to new members in 2014.
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