AXA UK scheme signs £3bn longevity swap for mostly deferred liabilities

The AXA UK Pension Scheme has entered into a £3bn (€3.5bn) longevity swap with Hannover Re, with the deal’s coverage of a material number of deferred members thought to be a first in the UK pensions market.

The arrangement provides long-term protection to the scheme against the costs associated with pensioners living longer than expected once they come into payment. More than 95% of the 16,000 members covered are non-pensioners, according to Willis Towers Watson, which was a lead adviser along with Linklaters.

The swap closed on 27 February.

Shelly Beard, senior director for transactions at WTW, said that in addition to removing the majority of the scheme’s remaining longevity risk, the inclusion of non-pensioners was very helpful for the scheme’s investment strategy as it provided increased cashflow certainty.

“Whilst pensioner longevity swaps have become relatively common place in the UK de-risking market since we led the first deal in 2009, this is the first whole of life longevity swap covering a material volume of non-pensioners and we expect significant appetite from other pension schemes to replicate the structure,” she said.

“More widely, the longevity swap market remains buoyant and represents an opportunity for pension schemes to manage a material risk whilst retaining the flexibility to achieve the required investment returns to complete their journey plan.”

Stephen Yandle, chair of the AXA UK Pension Trustees, said the £3bn deal was happy the scheme had taken a further important step to ensure that scheme members’ benefits were strongly secured against improvements in life expectancy.  

According to final 2020 risk transfer statistics shared by Mercer, last year was a record year for longevity swaps in the UK pensions market, with £24.2bn of deals struck. That included the second largest longevity swap to date, a £10bn transaction for Lloyds Banking Group Pensions Trustees Limited.

In total £56bn of risk transfer deals were completed last year, up from the previous high of £51.6bn in 2019. The £56bn includes a £400m Assured Pension Payment policy that Legal & General agreed for the Legal & General Group UK Senior Pension Scheme.

Looking for IPE’s latest magazine? Read the digital edition here.