The Scottish Power Pension Scheme has entered into a £2bn longevity swap with Abbey Life Assurance Company.
The deal transfers the risk of almost 9,000 scheme members living longer than expected to Abbey Life, a reinsurance company owned by Deutsche Bank.
Scottish Power Pension Scheme trustee chairman and BESTrustees director Peter Thompson explained the arrangement reduced risk to the pension scheme, provided increased certainty to the sponsoring company and increased scheme members’ security.
He added: “The trustee is pleased to have taken another important step in our ongoing process to improve further the level of security of all our members’ benefits.”
Mercer acted as lead adviser on the deal and Hymans Robertson was the actuarial adviser.
Mercer head of longevity swap consulting Andrew Ward said: “Through this transaction we have significantly reduced this uncertainty for the scheme while also securing very competitive pricing and robust security terms. Global reinsurers are the ultimate destination of the risk for longevity swaps. As part of this transaction, we managed a highly competitive bidding process involving a broad range of established and new reinsurers. As a result, it was ultimately possible to remove the risk at below the level of the current funding assumptions thereby achieving the holy grail of reducing both risk and deficit.”
Hymans Robertson partner Martin Potter said: “At this point, longevity was the right thing for the trustee to focus on – there was a clear strategic rationale for doing so and the pricing was attractive. This deal removes the risks associated with that uncertainty for the Scottish Power Pension Scheme, and goes some way towards de-risking it.”
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