Case Study: Babcock International

Babcock engineers a longevity swap

Engineering firm Babcock International has done a deal to take the risk of retirees living longer than expected out of its defined benefit (DB) pension scheme.

The deal, known as a longevity swap, paid Credit Suisse to take on the longevity risk. If employees live longer than expected, the bank pays the difference, but if they die earlier than expected, the bank will benefit.

Babcock arranged the deal, which will run for the next 20 years, solely for the pensioners in its scheme.

This kind of arrangement is preferable to a buyout for some pension schemes, because there is no large up-front lump sum. Instead, payments are staggered throughout the course of the deal.

Babcock was one of the first major organisations to set up this kind of arrangement, and is expected to start a trend among schemes of a similar size and nature.