AXA scheme enters longevity swap for deferred members in UK first
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The AXA UK Group Pension Scheme has entered into a longevity swap with Hannover Re to protect £3bn of mostly deferred pension liabilities in its defined benefit plan, in what is thought to be the first UK longevity swap to do so.
AXA said that combined with previous swaps, almost 93% of the pension scheme’s liabilities are now protected against the chance of members living longer than expected. The latest deal covers pensions that may come into payment after 31 March 2019 within the AXA UK Group Pension Scheme.
Swap ‘stabilises capital position’ of sponsor
The swap, which closed on 27 February 2021, will form part of the AXA scheme’s investment portfolio.
“Derisking the scheme will benefit all of our DB scheme members and will not affect any payments to members as they will continue to receive their pension as normal. This is a very positive step in providing additional security of members’ pensions,” said Stephen Yandle, who chairs the AXA UK Pension Trustees.
Vikram Chatrath, who heads up the pension strategy at AXA UK, said the firm was pleased to continue to support its scheme by leveraging internal technical and operational expertise.
“The collaboration with Hannover Re in implementing a deferred longevity swap, believed to be the first transaction of its type entered into by a pension fund trustee, assists in stabilising the capital position of AXA UK and furthers our commitment to proactively managing our non-core business risks,” said Chatrah.
Covering deferred members ‘increases cash-flow certainty’
The trustee and AXA had appointed consultancy Willis Towers Watson and law firm Linklaters to advise on the transaction.
Shelly Beard, senior director for transactions at Willis Towers Watson and lead adviser on the deal, said: “The speed at which this transaction was completed, even with the additional structuring considerations from including non-pensioners, demonstrates that once an initial longevity swap has been completed, additional transactions can be completed quickly and efficiently."
As well as removing the majority of the scheme’s remaining longevity risk, “the inclusion of non-pensioners is very helpful for the Scheme’s investment strategy as it provides increased cash-flow certainty”, she added.
This is the first whole of life longevity swap covering a material volume of non-pensioners, said Bear, who expects considerable appetite from other pension schemes to replicate the structure.
