Carillion plants £1 billion longevity hedge

Construction and support services company Carillion has implemented a longevity swap for £1 billion in liabilities at five of its defined benefit (DB) pension funds with Deutsche Bank.

The longevity swap will cover the DB schemes against rising costs should current pensioners live longer than expected. It is is part of an overall de-risking strategy designed to improve the security of promised benefits and increase certainty over future pension costs. The swap covers around 9,000 pensioners with a liability of around £1 billion. Robin Ellison, chair of the trustee to the pension funds, commented: “Pension scheme liabilities have risen significantly in recent years due to increasing life expectancy. The Trustee is pleased to announce that by completing this transaction with Deutsche Bank AG, it has hedged this risk for the members covered by the swap thereby helping to improve the security of benefits for all members.”

PwC and Mercer advised on the swap, which was structured such that five separate swaps were set up for five DB schemes with the swaps priced as a single transaction. This approach resulted both in economies of scale and in flexibility. Carillion group finance director, Richard Adam, commented: “We are delighted the Trustee has secured this deal to remove a significant amount of risk at an attractive price. The longevity swap reflects Carillion’s commitment to ensuring the security of the benefits of all our pension scheme members and reducing pensions risks.”