PensionsFirst Capital: Why transparency is key to getting the right longevity swap deal

Life expectancy has increased considerably over the past 50 years in the western world, driving up pension scheme liability valuations as more members are expected to live further and further into their 90s and beyond. And because the financial health of so many of the UK’s large public companies is intrinsically linked to their DB pension schemes, many treasurers and finance directors are rightly convinced that improvements in mortality rates spell a real threat to their company’s financial survival. Against this backdrop, it is clear why the management of longevity risk has now become an issue of good corporate governance and why schemes are interested in hedging the risk in the nascent longevity swap market. But given the long-term nature of the risk, how can treasurers evaluate, and then justify to board-level executives, the value of such a longevity swap? Writing for gtnews, Hugo James, CEO of PensionsFirst Capital suggests that the onus is not only on pension schemes to seek more sophistication in their risk valuation processes, but also on the swap providers to provide complete transparency around the potential transactions.

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