BT protects against 'longevity risk' with new pension arrangement

4th Jul 2014 07:59

Telecom titan BT has reached a deal with the trustee of its mammoth pension scheme to protect the company from increased costs linked to "potential increases in life expectancy".The longevity insurance and reinsurance arrangements cover of 25% of the BT Pension Scheme's (BTPS) total exposure to "improvements in longevity", covering £16bn of its liabilities."The longevity insurance policy will provide long-term protection and income to the Scheme in the event that members live longer than currently expected."BT has the largest pension plan in the UK private sector worth an estimated £47bn, over 1.5 times its market capitalisation of around £30bn.BTPS has transferred the so-called 'longevity risk' to a newly-created wholly-owned insurance company, who has in turn reinsured this risk with The Prudential Insurance Company of America. BT said that by setting up a new insurance company the trustee was able to access capacity in the global insurance and reinsurance market directly and achieve the best value for the BTPS."This transaction has taken many months of hard work by the Scheme's executive team," said Paul Spencer, Chairman of the trustee."This is a ground breaking deal in terms of size, structure and with one of the leading life insurance companies in the United States providing reinsurance. But more than this, the Trustee is delighted with a transaction that significantly reduces risk and provides enhanced security for members".BC