With Pensioners Refusing to Die, Trustees Move To Insure Against Longevity


A new study is showing that UK pension plans, faced with an aging population that relies heavily on defined benefit pension schemes, are expected to increasingly insure against such longevity risk.


(October 8, 2009) – United Kingdom (UK) pension schemes are expected to insure against the risk of retirees living longer then expected at an unprecedented level, a new survey reports.


According to Hewitt Associates, UK plans will insure more than US$8 billion of liabilities stemming from retirees living longer than expected. The insurance, sometimes referred to as longevity swaps, are structured so that insurers, banks, or another counterparty are paid a premium to take on the risk of a pensioner living past a set age. The longer a pensioner lives, the larger a pension plan’s liabilities – and thus the urge by many plan trustees to insure against a healthier, and thus potentially livelier, population.


According to Reuters, Matt Wilmington of Hewitt stated that the higher costs stemming from longevity have come to the forefront of pension liability management. Already, a third of FTSE 100 companies have altered calculations relating to pensioner longevity, which will, inherently, increase liabilities. In total, the entire FTSE 100 pension liability stood at nearly US$600 billion.


For an ai5000 magazine article on the problems with longevity in both the UK and United States pension system, see “The Problems on Whisky and Women .”

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>