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Pensions Corp sets up DB cover for longevity

The Pensions Corporation is offering an insurance product to protect companies’ defined-benefit pension funds against longevity risk.

The product, from the Pension Insurance Corporation, insures scheme members for whole of life. Pension funds will pay guaranteed annual premiums for insurance that will reimburse them for the cost of any future pension payments arising from people living longer than expected. The firm stresses the insurance is not offering an index-linked derivative instrument-like products offered by competitors.

The Pension Corporation consulted with advisers, trustees and corporate sponsors and Pension Corporation partner and Pension Insurance Corporation director John Fitzpatrick says the feedback was extremely positive.

He says firms have been looking for a way to protect members’ benefits and guard against the cost of paying out for longer.

He says: “Life expectancy increases one year every five years, which amounts to a 70 basis point rise each year. Companies prefer insurance policies over derivative options because they are less risky and cover them if their pensioners live longer instead of being based on the population at large.”

The policy is primarily designed for big pension funds with no plans for an immediate buyout that want to retain 100 per cent of their assets in the fund.

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