The Willis Pension Scheme has entered into a longevity swap transaction with Munich Re to manage longevity risk concerning £1 billion of pensioner liabilities.
This arrangement covers pensions in payment in the scheme and provides long-term protection for the scheme against additional costs resulting from pensioners or their dependents living longer than expected.
The transaction covers around 3,500 scheme members.
The longevity risk has been transferred to the reinsurer via a Guernsey-based captive insurance company fully owned by the Trustee of the Scheme, established under Willis Towers Watson (WTW) Guernsey ICC Limited.
This is part of WTW’s Longevity Direct solution which allows pension schemes to use a ‘ready-made’ incorporated cell company to access the reinsurance market.
Willis Towers Watson led the advice on the transactions, with Travers Smith, Carey Olson (Guernsey) and Hengeler Mueller providing legal advice to the Trustees.
Lincoln Pensions Limited advised on the reinsurer financial strength and Sidley Austin provided legal advice to Munich Re.
Commenting on Scheme, Ian Aley, head of transactions at WTW and lead adviser, said: “The longevity swap market is currently very buoyant and represents an opportunity for pension schemes such as the Willis Pension Scheme to manage a material risk whilst retaining the flexibility to achieve the required investment returns to complete their journey plan.”
“Completing this transaction despite some challenging circumstances following the recent lockdown demonstrates how collaborative working can deliver outstanding results,” he added.
Peter Routledge, chair of the Willis Pension Scheme, said: “I am delighted that the trustee has taken a first and significant step to ensure that our members’ benefits are secured against future improvements in life expectancy, supplementing the Trustee’s wider risk management programme to protect the Scheme against investment and demographic volatility.”
He noted: “The transaction was concluded effectively, enabling us to access the longevity swap markets whilst pricing was attractive relative to Scheme funding. Having considered the options for accessing the reinsurance market we concluded that longevity direct offered the best value solution for our Scheme.”
Additionally, Martin Lockwood, head of longevity at Munich Re, commented: “This transaction demonstrates Munich Re’s experience and commitment in the Longevity market and its ability to adapt to a challenging working environment."