UK - The £2.3bn (€3.3bn) UK pension fund of the Dutch electronics multinational Philips has said it is planning to set up a reserve fund to buffer against life expectancy risks.

In the latest edition of Insight, its yearly letter to members, the fund says: "The first call on any future surplus will be to create a reserve against [further increase to life expectancy]."

There are no investments available to match the cash flows after 50 years, said the fund, adding: "It is difficult to find investments that can accurately match the complex inflation rules of the fund."

Philips' UK fund also announced its funding position has remained stable, despite the recent market turbulences.

Moreover, the fund has confirmed it has adopted a liability matching investment strategy, whereby "interest rate, inflation (retail price index) and credit default swaps have been put in place to match, as far as possible, movements in the value of the future liabilities of the fund," Philips said in the fund's annual report.
The interest rate and inflation swaps were executed on a segregated basis with the a number of counterparties, year by year to 2056. Credit default swaps are executed with varying maturities up to 2017.

When contacted by IPE, Adrian Holmes, pension manager for Philips, said it was company policy not to comment publicly on such matters.