Pension Corporation launches longevity insurance product

The firm’s policy – offered by its subsidiary, Pension Insurance Corporation – will reimburse pension funds for the cost of any future pension payments that arise from pensioners living longer than expected.

Pension funds will pay fixed annual premiums set at the inception of the policy in return for this protection.

The comprehensive policy will remain in force until the death of a pension fund’s last covered pensioner or their dependant, such as a spouse.

Pension Corporation partner and Pension Insurance Corporation director John Fitzpatrick said: "Comprehensive longevity insurance will protect pension funds against the risk of their pensioners living longer, providing cover for the lifetime of pensioners and their dependants.

"We are confident our team’s extensive experience of developing insurance risk transfer products backed by a fully regulated insurance company will prove compelling to those pension funds and corporate sponsors."

Pension Corporation chairman Sir Mark Weinberg said: "Pension Insurance Corporation has the capacity and expertise to insure longevity risk now.

"Our approach will be to work closely with a pension fund, its trustees and advisers to tailor solutions that are appropriate to a fund’s longevity profile and presented in a clear policy."

Pension Corporation developed the longevity insurance product in recognition of the fact that life expectancy, or longevity, is increasing in the UK.

It said 65 year-old British men can today expect to live 4.5 years and women 3.2 years longer than they did in 1980.

The firm said this trend was accelerating and currently male life expectancy is increasing by one year every five years. The rate of improvement in male longevity continues to increase faster than for women.

It estimated that an improvement in life expectancy by one year would increase the liabilities of the average fund by more than 3.5pc.

Pension Corporation said the policy covered the specific longevity risk of the pension fund, rather than the longevity risk of the population at large, as in an index product

It said it differed from other policies because it covered the pension fund until the death of a pension fund’s last covered pensioner or their dependant, while other products provided cover for only ten years.

The policy requires no upfront payment – allowing 100pc of the scheme’s assets to remain fully invested and earning returns for the fund.