BT has offloaded £16 billion of its pension scheme’s liabilities into the insurance sector in what is believed to be the largest longevity swap transaction to date.
The BT Pension Scheme Trustee (BTPS) has structured a longevity insurance deal to protect the scheme against costs associated with potential increases in life expectancy.
These arrangements cover over 25 percent of the BTPS's total exposure to improvements in longevity, covering some £16 billion of the scheme's liabilities (measured on an economic basis at October 2013, the date the insurance and reinsurance commences).
The longevity insurance policy will provide long term protection and income to the scheme in the event that members live longer than currently expected.
BTPS has set up its own insurance company to facilitate the transaction and maximise the scheme’s access to the global re/insurance market.
BTPS has transferred longevity risk to this insurer, which has in turn reinsured the longevity risk with The Prudential Insurance Company of America, a US-based life insurance company.
Paul Spencer, chairman of the Trustee, said: "This transaction has taken many months of hard work by the scheme's executive team. This is a ground breaking deal in terms of size, structure and with one of the leading life insurance companies in the United States providing reinsurance. But more than this, the Trustee is delighted with a transaction that significantly reduces risk and provides enhanced security for members."
The longevity insurance policy will form part of the scheme's investment portfolio. These arrangements will not require additional contributions to be made by BT.
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