Manweb Group of the Electricity Supply Pension Scheme, Lanarkshire, Scotland, completed a £1 billion ($1.3 billion) longevity swap with Abbey Life Assurance Co.
The deal covers all retired members — about 4,000 — of the roughly £1.5 billion pension fund, said Andrew Ward, principal and head of longevity risk management at Mercer, in a telephone interview. Mercer acted as the lead adviser on the transaction.
The swap is structured as a tripartite insurance policy among the Electricity Pension Trustee Ltd., Manweb Corporate Pension Trustee Ltd. and Abbey Life, which is a wholly owned subsidiary of Deutsche Bank AG. The deal hedges against the risk of rising costs in the event of increased life expectancy of retirees.
Mr. Ward said Manweb is one of 23 different groups within the multiple employer Electricity Supply Pension Scheme that collectively have more than £30 billion in assets. The pension fund's sponsoring employer, ScottishPower U.K. PLC, also sponsors a separate pension fund, the ScottishPower Pension Scheme, Lanarkshire, which completed a £2 billion longevity swap in December 2014 with Abbey Life.
Mr. Ward added that Manweb's longevity swap forms part of a risk management strategy by Manweb Group and ScottishPower, and said Mercer believes it is “fairly likely” other ESPS group pension funds might follow suit.
“Rising life expectancy has led to significant increases in U.K. pension scheme liabilities over the past couple of decades,” said Graham Wardle, Manweb Group trustee chairman and managing director at BESTrustees, a provider of independent trustee services, in a news release from Mercer. “By implementing this longevity swap, the group has taken a major step in removing this risk in the future.”
Law firm CMS also advised Manweb Corporate Pension Trustee Ltd.