FTSE 100 energy company, SSE PLC, has worked with two of the Defined Benefit (DB) pension schemes it sponsors, to deliver a landmark project that will hedge £1.2bn of longevity risk.

The £1.2bn longevity risk will be through two buy-in transactions and a longevity insurance.

The two buy-ins with Pension Insurance Corporation (PIC) totalled £350m, covering c£250m of pensioner liabilities in the Scottish Hydro-Electric Pension Scheme (SHEPS) and c£100m of pensioner liabilities in the Scotia Gas Networks Pension Scheme (SGNPS).

The longevity insurance covers a further £800m of pensioner longevity risk in the SHEPS and is the first transaction to use Legal & General's efficient "UK-based pass through" structure to transfer longevity risk to the end reinsurer.

Hymans Robertson was the architect of the project and lead advisor on all transactions – the company predicts more organisations will follow suit in the future.

Hymans Robertson said: "The combination of these three transactions led to material improvements in the funding positions of both schemes, allowing them to reduce risk and improve member security."

"SHEPS is the first scheme to have combined a buy-in and a longevity insurance to hedge its longevity risk and we expect others to follow this blueprint which helps to tailor transactions to pension schemes' individual circumstances."

Hymans Robertson said the trustees of the SHEPS and the SGNPS achieved significant cost savings on the buy-in transactions by requesting insurers to provide quotations for both schemes at the same time.

This brought noticeable transactional efficiencies and led to particularly competitive pricing from insurers, it said.

CMS provided legal advice to the Trustees on both transactions, and Club Vita provided longevity analytics throughout the process and Eversheds Sutherland provided legal advice to Legal & General.

Graham Laughland, Chair of trustees for the Scottish Hydro-Electric Pension Scheme, said: "I am delighted to have taken this positive step in reducing risk and improving the security of members' benefits.

Tony Fettiplace, chair of trustees for the Scotia Gas Networks Pension Scheme said: "This deal is great news for the Scheme - reducing risk over time is an absolute priority for us and it is important to do this in the most cost effective way."

First published 21.08.2017

Lindsay.sharman@wilmingtonplc.com