Lloyds scheme completes £5.5bn longevity swap

Deal covers pensioner liabilities in the Lloyds Bank Pension Scheme No.1

Jonathan Stapleton
clock • 2 min read
This is the second second longevity hedging arrangement completed by the Lloyds schemes
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This is the second second longevity hedging arrangement completed by the Lloyds schemes

Lloyds Banking Group Pensions Trustees has completed a second longevity hedging arrangement, protecting a further £5.5bn of liabilities with Scottish Widows and SCOR.

The trustee body said it had entered into a longevity insurance and reinsurance arrangement with Scottish Widows and SCOR to further protect its schemes from the cost of unexpected increases in the life expectancy of its members.

The new longevity insurance and reinsurance arrangement covers £5.5bn of pensioner liabilities in the Lloyds Bank Pension Scheme No.1 and follows the £10bn of liabilities covered across the Lloyds Banking Group pension schemes by a similar arrangement entered into by the trustees in 2020

This protection is structured as an insurance with Scottish Widows as the insurer and corresponding reinsurance with SCOR as the reinsurer. This structure means the scheme's longevity risk is passed to SCOR.

Vicky Paramour, managing director of Law Debenture's pensions practice, is trustee director at the scheme and chair of its investment and funding committee.

Commenting on the deal, she said: "This will reduce the scheme's exposure to longevity risk and make the scheme more secure to the benefit of all members.

"The selection of Scottish Widows Limited and SCOR followed a fair, robust and transparent review of the longevity insurance and reinsurance options available across the market and their respective propositions delivered the best combination of benefits to meet our brief." 

WTW senior director Matt Wiberg advised the trustees. He added: "The trustee has now hedged over £15bn of the schemes' longevity risk providing greater certainty in relation to their long-term journeys.

"The infrastructure established by the first transaction in 2020 was crucial in running an efficient process that enabled the trustee to benefit from a market opportunity to further reduce longevity risk in a cost-effective manner." 

Allen & Overy was legal adviser to the trustee.

Scottish Widows head of origination and operations Lara Desay said the deal demonstrated the level of demand for such de-risking options among schemes.

She said: "We are delighted to be able to extend our relationship with the trustees in their de-risking journey. This transaction demonstrates the continued high demand for longevity protection for UK pension schemes to mitigate funding volatility. We are also grateful to our legal adviser Eversheds Sutherland, SCOR and advisers on all sides of the deal for the collaborative approach adopted to complete this complex transaction." 

SCOR head of longevity business development Matt Collins added: "It was a great pleasure working with the trustee and its advisors at WTW on such a milestone transaction for SCOR. The investment put in by the trustee and WTW on previous transactions significantly helped make this a smooth and efficient process. I would like to thank all the parties including our advisor, CMS, who worked together with us for the successful completion of this significant transaction."

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