UK pensions seen hedging 5 bln stg longevity risk

LONDON Sun Oct 4, 2009 7:01pm EDT

LONDON Oct 4 (Reuters) - UK pension schemes are likely to insure over 5 billion pounds ($7.95 billion) of liabilities linked to rising life expectancy in 2010, consultants Hewitt Associates HEW.N said on Monday.

Matt Wilmington, global risk management specialist at Hewitt Associates, told Reuters the higher costs associated with the risk of retirees living longer had become a key issue to both trustees and sponsoring companies.

"Hewitt believes the longevity swap market will see a minimum of six deals over the next year, with a total value of over 5 billion pounds," he said.

"Once the Babcock deal was announced, we saw quite a flurry on interest from clients," Wilmington said.

In May, pension consultants said a longevity swap deal struck by engineering group Babcock International's (BAB.L) pension schemes to hedge 500 million pounds would open the door to more such deals. [ID:nLB600429]

Through longevity swaps, trustees pay a bank or some other counterparty to take on some of the risk over a defined period.

Wilmington said some of the new longevity swaps were at an "advanced stage" and he expected the bulk to be announced in the first quarter of next year. Hewitt is advising on some of those deals.

Around a third of FTSE 100 companies have already raised the age at which they assume their retirees will die, a move that will increase their pension liabilities.

On Sept. 30, the FTSE 100 pension liabilities stood at 444 billion pounds, against 366 billion pounds of assets. (Reporting by Cecilia Valente, editing by Will Waterman) ($1=.6289 Pound)