On the go: The Scottish Hydro-Electric Pension Scheme – sponsored by Scottish and Southern Energy – has converted a longevity swap into a £750m buy-in contract with the Pension Insurance Corporation.
This transaction is the latest step in the trustee’s long-term derisking strategy, after having previous completed a £250m buy-in with PIC in 2016 and £800m of longevity insurance with Legal & General in 2017.
Officials stated that as the funding position of the scheme improved over time, the trustee was then able to take the next step in risk reduction by converting the longevity swap.
According to Tristan Walker-Buckton, head of pricing at PIC, converting a longevity swap into a buy-in is not straightforward, but it is increasingly common.
He said: “It shows that trustees are keen to extend their derisking programme beyond longevity risk and into a buy-in or buyout, giving them fuller coverage and a simpler proposition to manage long-term.”
Graham Laughland, chair of trustees for the Scottish Hydro-Electric Pension Scheme, said he was delighted that the trustees had “been able to take another step in reducing risk and improving the security of members’ benefits”.
He said: “This buy-in extends the insurance we have in place and provides the scheme with an income stream that matches in all material respects the pensions currently being paid.”
Hymans Robertson was lead advisor on the transaction, with Shepherd and Wedderburn advising on the structure and providing legal advice on the transaction to the trustees.
