Prudential close to double derisking deal

They will receive longevity, inflation and interest rate hedges for 10 years at no initial cost, in exchange for an agreement to perform a pensioner buy-in at the end of this time, with the price set at market buy-in costs when the deal was struck.

These will be the first sales of Prudential’s Future Premium Product, and the insurer is hopeful of completing deals with two schemes with total assets of between £500m-£1bn, by the end of the year.

The proposition is designed for schemes that are interested in buy-in and other derisking measures but are unable to afford them.

The 10-year timeframe is designed for them to invest cash to cover the cost of the buy-in.

Prudential is also pitching it as a hedge against the price of derisking rising once Solvency II legislation comes into force. However, if a buy-in is cheaper once the delay has elapsed, participating schemes will in fact be disadvantaged.

Andy Reed, defined benefit solutions director at Prudential, claimed it could be tailored to individual clients, with deferred buy-in alongside pensioners, and variations in the time between buying and paying.

He added the company had also been in talks with a number of public sector schemes about the product.

“We are close to deals with a couple of schemes. I’d like to get them done before the end of the year, but I can’t say for certain,” he told PW.

“We think this is a way for sponsors to show they are serious about risk and are taking precautionary measures, even if they can’t pay for it right now.

“They set up an investment aimed at securing whatever price we agree over the 10 years, realise it as cash, which they pay us. We then cover their deferred member benefits.”