Aimed at DB schemes with pensioner liabilities in excess of £50m, the longevity hedge forms part of the new Mercer SmartDB bespoke de-risking and fiduciary management services offering.
Mercer says the complexity and advisory costs of a longevity hedge – where an insurer assumes the longevity risk and cost of a section of a pension scheme’s members in return for a premium – have historically meant that their use in pension scheme de-risking has been restricted to larger DB schemes of typically £1bn of liabilities or more. Insurers and reinsurers have found quoting on smaller schemes prohibitive due to the high transaction costs involved and the complexity of each bespoke deal.
Mercer UK head of DB risk Alan Baker says: “It’s a lower risk, higher return solution compared to alternatives like a pensioner buy-in. We have pre-agreed hedging terms with a panel of reinsurers fronted by Zurich, to allow clients access to the best prices because getting them competitive deals is crucial. It’s unique and we’re delighted to offer it in partnership with such a well-known global insurer.”
Zurich head of corporate life and pensions, UK and international savings Simon Foster says: “DB pensions have been facing significant funding challenges in recent years from people living longer and uncertain economic conditions. As a result, most have closed to new members, and many have stopped future accrual, with the focus now moving to stabilise existing liabilities. Given the clear market need this is a natural extension to our UK proposition.”