Lloyds Banking Group pension trustees have struck a longevity swap covering £10bn (€11.8bn) of pensioner liabilities, the second largest longevity de-risking transaction ever in the UK.

The deal covers pensioner liabilities in the Lloyds Bank Pension Scheme No.1, Lloyds Bank Pension Scheme No.2 and HBOS Final Salary Pension Scheme.

The protection is structured as an insurance contract with Scottish Widows as the insurer and corresponding reinsurance with Pacific Life Re. 

The group undertook a full market review that saw several insurers and reinsurers’ proposals.

Harry Baines, chair of Lloyds trustees, said Scottish Widows and Pacific Re were chosen because their respective propositions “delivered the best combination of benefits to meet our brief”. 

Matt Wiberg, senior consultant at Willis Towers Watson and lead adviser to the trustees, said: “This transaction is an important step for the schemes as it provides greater certainty in relation to their long-term journeys.”

He added that WTW had “identified that longevity was a major, growing risk and we have successfully supported the schemes in taking advantage of market opportunities to achieve highly competitive, cost effective, longevity protection”.

Sadie Scaife, consulting actuary at WTW, said 2020 will be a record-breaking year for the longevity swap market, with more swaps than in any previous year and total volumes in excess of £25bn.

She predicted that transactions will be heavily weighted towards white-collar schemes, particularly in the first half of the year, opening up opportunities for blue-collar schemes as reinsurers that have already won business seek to diversify and others target schemes that better suit their preferred demographics.

The largest longevity swap so far is a £16bn deal by BT Pension Scheme in 2014.