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| Version 1 | Version 2 |
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| BT pension deal cuts longevity risk | BT pension deal cuts longevity risk |
| (about 1 hour later) | |
| The UK's biggest corporate final-salary pension scheme has struck a deal to protect itself against members living for longer than expected. | The UK's biggest corporate final-salary pension scheme has struck a deal to protect itself against members living for longer than expected. |
| The BT pension scheme has set up its own insurance company and then re-insured its longevity risk with a US-based insurer. | The BT pension scheme has set up its own insurance company and then re-insured its longevity risk with a US-based insurer. |
| In the biggest deal of its kind, the arrangement covered 25% of the scheme's exposure to increased life expectancy. | In the biggest deal of its kind, the arrangement covered 25% of the scheme's exposure to increased life expectancy. |
| This amounted to £16bn of the scheme's liabilities. | This amounted to £16bn of the scheme's liabilities. |
| Staff and ex-staff who are members of the scheme will not see their contributions or pension payments affected. The deal is designed to improve the strength of the scheme. | Staff and ex-staff who are members of the scheme will not see their contributions or pension payments affected. The deal is designed to improve the strength of the scheme. |
| The BT pension scheme has 320,000 members, £40bn in assets, and makes £2bn in pension payments every year, according to figures published in June 2013. The pension scheme has a promise of assistance from government, made at the time of privatisation, were BT to collapse. | The BT pension scheme has 320,000 members, £40bn in assets, and makes £2bn in pension payments every year, according to figures published in June 2013. The pension scheme has a promise of assistance from government, made at the time of privatisation, were BT to collapse. |
| The final-salary scheme is closed to new members, and is immersed in a nine-year plan to bolster its state. BT's performance as a company has been dragged down in the past owing to the need to support the pension fund. | The final-salary scheme is closed to new members, and is immersed in a nine-year plan to bolster its state. BT's performance as a company has been dragged down in the past owing to the need to support the pension fund. |
| 'Appetite for large deals' | 'Appetite for large deals' |
| The BT pension scheme said that the longevity insurance policy would provide long-term protection and income to the scheme if its members lived longer than currently expected. | The BT pension scheme said that the longevity insurance policy would provide long-term protection and income to the scheme if its members lived longer than currently expected. |
| The fact that the BT pension scheme set up its own insurance company, then had the longevity risk re-insured, means that it does not pay fees to an intermediary, as would often be the case. It also means there is no intermediary-imposed limit on the size of the deal. The insurance deal has been signed with The Prudential Insurance Company of America. | |
| "This is a ground-breaking deal in terms of size [and] structure," said Paul Spencer, chairman of the BT pension scheme trustees. | "This is a ground-breaking deal in terms of size [and] structure," said Paul Spencer, chairman of the BT pension scheme trustees. |
| "[We are] delighted with a transaction that significantly reduces risk and provides enhanced security for members." | "[We are] delighted with a transaction that significantly reduces risk and provides enhanced security for members." |
| Other companies have taken out similar insurance, but at much lower levels. The deal is three times bigger than anything similar set up by a UK pension scheme. The record was set by Aviva earlier this year. | Other companies have taken out similar insurance, but at much lower levels. The deal is three times bigger than anything similar set up by a UK pension scheme. The record was set by Aviva earlier this year. |
| Ian Aley, of consultant Towers Watson, who advised the BT pension scheme on the deal, said: "Until recently, it would not have been possible to hedge anything like this much longevity risk in one go. | Ian Aley, of consultant Towers Watson, who advised the BT pension scheme on the deal, said: "Until recently, it would not have been possible to hedge anything like this much longevity risk in one go. |
| "A strong appetite from reinsurers means that very large deals are now possible." | "A strong appetite from reinsurers means that very large deals are now possible." |
| However, he said he did not expect schemes setting up their own wholly-owned insurance companies to become the norm. | However, he said he did not expect schemes setting up their own wholly-owned insurance companies to become the norm. |
| BT's share price rose in early trading after the move was announced but fell back later. | BT's share price rose in early trading after the move was announced but fell back later. |