Phoenix Group has entered into a longevity swap for its defined benefit pension scheme.
The longevity swap of the PGL Pension Scheme, which covers 12,000 members and has a liability of around £900 million, is aimed at hedging against the risk of rising costs as a result of the current pensioners living longer than expected.
It also aims to provide additional security for the trustees.
The organisation has entered into a longevity swap transaction with its own insurer Phoenix Life Limited, simultaneously reinsuring the longevity risk.
Aon Hewitt has acted as the lead advisor to the trustees of the scheme in their longevity insurance transaction with Phoenix Life Limited
Martin Bird, senior partner and head of the risk settlement group at Aon Hewitt, said: “This transaction highlights the continuing innovation in the longevity risk transfer market, particularly around ways of accessing the reinsurance market.
“Already this year we have seen the BT deal involving the establishment of an insurance vehicle and the Aviva transaction, where an insurance vehicle owned by the scheme sponsor acted as intermediary between the scheme and the reinsurers.”
Matt Wilmington, partner in the risk settlement group at Aon Hewitt, added: “The arrangement was a win-win for trustees and Phoenix Life, reducing risk in the scheme, and allowing the insurer to structure its capital arrangements more efficiently.
“We also expect a number of other insurers which are in a similar position with large defined benefit pension schemes to consider a similar type of arrangement.”
