Longevity risk has been on everyone’s mind since telecoms giant BT announced a behemoth deal to hedge 25 per cent of its total exposure to longevity improvements.
As I wrote in a recent blog, advances in biomedical science have dramatically increased lifespans, which poses a real risk to a lot of schemes, with many now looking at the best ways to reduce such a risk.
Aubrey de Grey, a biomedical gerontologist (gerontology is the study of ageing) and founder of the Sens Research Foundation, has said the first person to live to 150 years old has already been born and that someone born within the next 20 years could live to be 1,000. For anyone that runs a pension scheme this is a frightening thought.
The £16bn BT Pension Scheme set up a wholly owned insurance company and entered into an insurance agreement with The Prudential Insurance Company of America.
The fact that this deal was with a non-UK insurer was of interest. Someone I recently spoke to said that foreign insurers taking on this risk was opening the door for larger deals to be completed.
It will be interesting to see how the rest of the year pans out with longevity hedging, as many industry watchers have predicted it may be a record-breaking year in the derisking market.
Illustration by Ben Jennings
Summertime
As the weather heats up it is time for us to take a break. We will be back in print on August 25, but will continue to update pensions-expert.com throughout that period.
Pensions Expert published its first edition in January of this year, featuring a story entitled ‘Schemes told to offer annuity brokerage’, in which we reported on a Westminster debate on reform to the annuity market.
This story brings home how much the pensions landscape has changed since we first published. In January, few were aware of the major changes the chancellor was planning in his Budget.
The ramifications of which are still being felt, but important questions remain to be answered. Key among them is what form the guidance guarantee will take. With news on this expected this week, I doubt it will be a quiet summer.
Lisa Botter is deputy editor of Pensions Expert. You can follow her on Twitter @lisa_botter and the team @pensions_expert.
