LONDON, (23 March) 2017- Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has announced that it has completed the first unwinding of a longevity swap.
In December 2016, the PGL Pension Scheme agreed to transform the insurance terms of the swap, replacing it with a £1.2bn annuity with Phoenix Life, which added to the risk transferred from the scheme.
Aon has advised the scheme’s trustee along a de-risking path for several years. During this time:
• The scheme first hedged all of its key financial risks using liability driven investment (LDI).
• It then addressed other risks for its pensioners; in 2014, Aon advised the trustee on the purchase of a longevity swap, also with Phoenix Life (part of the sponsoring employers’ group).
• The scheme also invested in innovative illiquid asset strategies and has delivered stable positive returns.
Favourable asset performance, together with a successful liability management programme, led to the scheme making 2016’s largest bulk annuity purchase. Crucially, by arranging the longevity swap in advance, the trustee was able to agree beneficial pricing for the annuity conversion.
The annuity terms were expressly tailored to the scheme’s circumstances and included an all-risks cover for residual risks and a new collateral structure to back the annuity which gives substantial additional protection. Advance planning allowed the annuity to be implemented as soon as it was feasible, even though it was near the Christmas market close.
Dominic Grimley, Risk Settlement adviser at Aon Hewitt, said:
"Bringing so many elements of the scheme together in this way was a particularly rewarding experience. Reaching this point was only possible due to the hard work and belief from the trustee and employer, combined with strong stewardship of the scheme."
This initiative was part of a wider framework under which the trustee and employer are continuing to work together to support further de-risking. This framework is designed to steadily improve the scheme's financial position further through measured risk-taking, increasing the options available to members, and an agreed funding plan.
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Notes to Editors
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