Pilkington pension plan in longevity swap with Legal & General

MERSEY, England—Pilkington Group Superannuation Scheme in Merseyside, England, entered into a longevity swap transaction with Legal & General Assurance Society Ltd. valued at £1 billion ($1.54 billion), said Martin Bird, managing principal and head of the risk settlement group at Aon Hewitt, the plan's lead consultant on the deal.

Pilkington will offload about 60% of the £1.3 billion ($2.0 billion) Pilkington fund’s total pension liabilities to Legal & General, said Mr. Bird.

Under the agreement, Pilkington agreed to make a series of payments to Legal & General over a fixed period of time, priced according to the average life expectancy of retired Pilkington employees covered in the transaction. In return, Legal & General agreed to cover pension payments for the members for as long as they live, Mr. Bird said.

“The credit crunch has shined the spotlight on managing pension risks, and one of those risks is longevity risk,” Mr. Bird said.

The deal follows a record year in 2011, when about £6 billion ($9.24 billion) of longevity swap transactions were announced, according to data from Aon Hewitt. “We think this is the tip of the iceberg, with probably more (deals) to come in 2012,” according to Mr. Bird.

Thao Hua is a reporter for Pensions & Investments, a sister publication of Business Insurance.