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UK electricity-sector pension fund insures £1bn of longevity risk

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The Electricity Supply Pension Scheme (ESPS) has seen the longevity risk associated with 4,000 of its members passed to Abbey Life after one of its sponsors struck a £1bn (€1.2bn) de-risking deal.

The transaction, agreed by Manweb Group, one of the £32bn industry-wide scheme’s sponsors, is structured as a tri-partite insurance policy between Electricity Pension Trustee Limited, Manweb and Abbey Life, which itself is a subsidiary of Deutsche Bank.

The deal is the second in a year to pass on longevity risk with its pension provision, following a £2bn longevity swap for the ScottishPower Pension Scheme, also part of Manweb.

Andrew Ward, head of longevity risk management at Mercer, which acted as lead adviser on the latest transaction, said the consultancy was “delighted” to have completed the first such de-risking deal for ESPS.

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“We worked closely with the trustees to achieve a successful outcome for all parties, thus allowing the group and ScottishPower to continue to reduce the long-term volatility of their pension costs in an efficient manner.”

Ward said the transaction showed that such risk-management practices were still possible in the wake of the UK’s decision to leave the European Union, which he said had created much uncertainty.

“Graham Wardle of BESTrustees, who acts as Manweb’s trustee chairman, noted that increases in life expectancy had seen UK liabilities increase in recent years,” he added. 

“By implementing this longevity swap, the group has taken a major step in removing this risk in the future.”

The deal was announced days after Legal & General passed on some of the longevity risk associated with its bulk annuity business to Prudential Retirement Insurance and Annuity Company.

In a statement, Prudential also referenced the vote to leave the EU, noting the ability to transfer risk was “unaffected by this momentous event”.

The parties did not disclose the size of the transaction, which was the fourth reinsurance deal completed.

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