Major longevity swap for electricity pension funds

The Manweb Group of the Electricity Supply Pension Scheme has undertaken a £1 billion longevity swap to cover pensioner liabilities.

The swap was agreed with Abbey Life, part of Deutsche Bank, and covers 4,000 pensioner members by hedging against the rising cost of greater than expected longevity. Mercer acted as lead adviser for the transaction, covering feasibility, provider selection, accessing reinsurance capacity, structuring, contractual terms and implementation. Andrew Ward, head of longevity risk management at Mercer, commented: “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 after the EU referendum.”

Graham Wardle, group trustee chairman of Bestrustees, commented: “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.”