UBS UK pension scheme enters into £1.4bn longevity hedge

first_imgThe UBS (UK) Pension and Life Assurance Scheme has covered the longevity risk associated with the majority of its defined benefit (DB) pensioner members via a £1.4bn (€1.5bn) longevity swap with Zurich Assurance.Until now all the longevity risk in the roughly £3bn DB section of the scheme had been unhedged, according to Richard Hardie, chair of the trustee.He said: “This transaction is an important building-block in our plan to reduce the uncertainties facing the DB section of our scheme as it approaches maturity.“It adds considerably to the security of all DB members’ pensions; the longevity risk attaching to approximately half its liabilities (broadly its pensioners) has been removed.” Suthan Rajagopalan, partner at Mercer and lead adviser to the trustee, said longevity risk management had been on the trustee’s agenda for several years.“This transaction was the result of a thorough review of the scheme’s longevity risk exposures and the options, initially including bulk annuities, for reducing these, complementing the trustee’s ongoing de-risking programme and investment strategy.”Mercer, which acted as the lead commercial and investment adviser to the trustees, said the deal was structured as an “innnovative ‘pass through’” insurance contract, with 100% of the longevity risk reinsured by Canada Life Reinsurance.Greg Wenzerul, Zurich’s head of longevity risk transfer, said: “We adapted Zurich’s large-scheme longevity swap solution to fit the trustee’s requirements for a flexible, long-term insurance solution to hedge the scheme’s longevity risk in a cost effective manner.“The trustee, Canada Life Reinsurance and their respective advisers deserve huge credit for the efficient execution of this transaction during a period of severe turbulence and uncertainty, the nature of which further underlines the benefit and security of using a UK regulated insurer for longevity hedging.”UBS’s deal is the third longevity hedge by a UK pension scheme to be disclosed this year. In January it was revealed that Lloyds Banking Group struck a £10bn longevity swap, the second largest longevity de-risking transaction ever for a UK pension plan, and last week a £1bn longevity hedge by Willis Pension Scheme was reported.According to a Mercer spokesperson, there was another Mercer-led longevity swap for £150m in the first half of the year but the providers and the pension scheme involved have not yet been announced.Last year there were two longevity swaps, and the year before three. The Merchant Navy scheme this year converted a longevity swap to a £1.6bn buy-in, with consultants saying the trend of such conversions is likely to continue.Looking for IPE’s latest magazine? Read the digital edition here.last_img

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