[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries

Rolls-Royce completes £3bn longevity swap

The firm said the deal - conducted with Deutsche Bank - will give additional security to all members of the company's final salary pension scheme. It explained around 37,000 pensioners are covered by this agreement.

It said the cost of the transaction would be borne by the pension fund and have "no material effect on funding arrangements".

Rolls-Royce finance director Andrew Shilston said: "We have made sure that as our pensioners live longer in retirement we have made proper provision for them. This is the latest in a series of measures we have taken to achieve greater certainty for our future funding requirements".

Rolls-Royce Pension Fund trustee chairman Paul Spencer added: "We have been working closely with Rolls-Royce for some years to enhance the security of all our members' benefits. This is another important step forward."

Under the longevity swap the trustees and the Deutsche Bank have agreed an average life expectancy.

If pensioners live longer than expected, Deutsche will make payments to the fund to offset the additional cost of paying pensions. If the reverse applies, the cost of paying pensions will be reduced but the pension fund will be required to make payments to the bank. This arrangement enables future liabilities to be predicted with more certainty.

The trustees were advised by Aon Hewitt, which acted as lead adviser; Linklaters, which acted as legal adviser; and Mercer, which acted as investment adviser. State Street will act as credit support services manager and custodian.

Aon Hewitt managing principal Martin Bird and principal Matt Wilmington acted as lead advisers on the deal.

Bird commented: "The Rolls-Royce trustees entered into the swap to further enhance the security of all the members' benefits.

"We worked closely with the Trustees to decide that this was the right approach for them to take and also that the swap was structured in a way that offered the best possible terms on price, security and other key longevity hedge features."

Wilmington added: "This transaction, along with others completed in the last year or so, underlines a continued focus on pensions risk management and in particular the use of longevity swaps as a key risk management tool for both trustees and sponsors."

Mercer advised the trustees of the fund on the investment implications of the transaction - including the interaction with the existing liability hedging arrangements and the overall impact on the plan's risk position.


Source: Professional Pensions