The Manweb Corporate Pension Trustees have agreed a £1bn longevity swap with Abbey Life Assurance Company.
The deal covers around 4,000 pensioner members of electricity provider Manweb Group which is part of the Electricity Supply Pension Scheme.
The longevity swap is structured as a “tri-partite insurance policy” between the Electricity Pension Trustee Limited, the Group Trustee and Abbey Life. It will hedge the scheme against the risk of rising costs as a result of the current pensioners living longer than expected.
It is the first longevity swap to be transacted for a group of the Electricity Supply Pension Scheme and the second for Manweb’s parent company Scottish Power following its £2bn longevity swap in 2015.
Group trustee chairman, Graham Wardle of BESTrustees, said: “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. We would like to thank Mercer for their clear advice and efficient management of this process which has led to a positive result for the group.”
Mercer acted as the lead adviser on the transaction, covering all aspects including feasibility, provider selection, accessing reinsurance capacity, structuring, contractual terms and implementation.
Mercer head of longevity risk management, Andrew Ward said: “We’re delighted to have helped the group be the first member of the Electricity Supply Pension Scheme to manage their longevity risk in this way. We worked closely with the trustees to achieve a successful outcome for all parties, thus allowing the group and Scottish Power to continue to reduce the long-term volatility of their pension costs in an efficient manner – an approach that is encouraged by Ofgem, the UK energy regulator.”
