The Prudential Staff Pension Scheme, M&G’s largest UK pension scheme, has entered into a £3.7bn (€4.1bn) longevity swap, the fifth largest ever such deal by a UK pension fund, with Pacific Life Re.

Separately, the £1.4bn Baker Hughes UK pension plan has emerged as the latest scheme to have taken advantage of widening credit spreads in the wake of the introduction of COVID-19-linked confinement measures earlier this year. Just Group today announced having completed a £100m buy-in with the pension scheme.

At M&G, the Prudential Staff Pension Scheme’s longevity swap policy covers the risk of unexpected increases in the life expectancy of over 20,000 pensioners.

The deal was structured using a Guernsey-based captive insurance company owned by the scheme trustees, which provided access to the reinsurance market. Artex Risk Solutions was selected to establish the captive entity, with Pacific Life Re chosen as the reinsurer.

Ian Aley, head of transactions at Willis Towers Watson (WTW), lead adviser to the trustee, said: “By maximising competition in both the reinsurance market and between the providers of ‘ready-made’ captive solutions to the trustee we were able to tailor a package to suit our client’s precise requirements.”

Keith Bedell-Pearce, chair of the trustee, said longevity risk came in for close scrutiny by the pension scheme due to its “diligent approach to risk management”.

Simon Banks, head of pensions and benefits at M&G plc, added: “As an organisation we have worked over many years to support the trustee in managing risk. This transaction marks another positive step in de-risking the scheme, and providing long-term security for members, as well as providing greater certainty to M&G plc.”

The deal is the second largest longevity swap this year, after a £10bn transaction for Lloyds Pension Scheme in January, itself the second largest deal ever in the UK pensions market.

The Prudential Staff Pension Scheme was originally established in 1918 by The Prudential Assurance Company, which remains the scheme’s principal employer and is a major company within M&G plc. The defined benefit section, which is closed to new members, has some £7bn of assets and liabilities.

At energy technology company Baker Hughes, the £100m buy-in followed “a measured approach to the market with the time invested building the ‘take to market’ proposition reaping awards,” according to the chair of trustees, Venetia Trayhurn of Law Debenture.

Tom Ashworth, director at WTW, the lead adviser, said: “Mid-March to June was an incredibly attractive time to undertake a buy-in due to a widening of credit spreads, and we helped 14 clients transact buy-ins during this period.”

He said credit spreads have since narrowed but pricing was still proving attractive and the consultancy was anticipating a flurry of deals closing between now and the end of the year.

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