The broadcaster ITV yesterday sought to draw a line under the rapidly rising cost to its underfunded final salary pension scheme of people living longer by paying Credit Suisse to take on the risk.
Under the deal, ITV's pension scheme will pay a monthly premium to Credit Suisse, the Swiss banking group, which will then pay scheme benefits to members when they retire.
The premium is based on scheme members living a year longer than current projections suggest that they will. However, if the scheme's members exceed this by living even longer, then the extra cost will be met by the bank.
The deal will in effect add £50m to the £2.2bn ITV pension scheme's funding shortfall of £312m. However, ITV will make this up by extending an arrangement where revenues from its digital subsidiary SDN are paid into the pension scheme.
Pension experts believe "longevity-swap" deals such as the one completed by ITV will boom over the next couple of years because they could be significantly cheaper than so-called pension buyouts or pension buy-ins.
The latter arrangements have seen a number of companies including Rank, Emap and P&O offloading the entire liabilities and risks of their pension schemes to third parties.
However, the companies involved had to pay significant upfront premiums to the third parties.
Smaller deals such as the one signed by ITV involving specific risks could prove more attractive, not least because they do not carry any upfront cost, being payable over time. The contract between ITV and Credit Suisse is good for 70 years in total.
Raj Mody, a pensions partner at PricewaterhouseCoopers, which advised ITV on the deal, likened it to switching a variable-rate mortgage to a fixed-rate: "There's not any actual upfront cost to do that but you might pay a bit more every month on a fixed rate than you do on a variable rate. However, like the fixed rate, what this does do is to provide certainty on the costs."Reuse content