With Pensioners Refusing to Die, Trustees Move To Insure Against Longevity

(October 8, 2009) – United Kingdom (UK) pension schemes are expected to insure against the risk of retirees living longer then expected at an unprecedented level, a new survey reports.

According to Hewitt Associates, UK plans will insure more than US$8 billion of liabilities stemming from retirees living longer than expected. The insurance, sometimes referred to as longevity swaps, are structured so that insurers, banks, or another counterparty are paid a premium to take on the risk of a pensioner living past a set age. The longer a pensioner lives, the larger a pension plan’s liabilities – and thus the urge by many plan trustees to insure against a healthier, and thus potentially livelier, population.

According to Reuters, Matt Wilmington of Hewitt stated that the higher costs stemming from longevity have come to the forefront of pension liability management. Already, a third of FTSE 100 companies have altered calculations relating to pensioner longevity, which will, inherently, increase liabilities. In total, the entire FTSE 100 pension liability stood at nearly US$600 billion.

For an ai5000 magazine article on the problems with longevity in both the UK and United States pension system, see “The Problems on Whisky and Women .”