JP Morgan takes on risk of UK pension plan

JP Morgan has taken on £70m of risk posed by people living longer than expected in the first deal to hedge against higher life expectancy for a company pension plan's working members.

JP Morgan said yesterday the swap contract with the trustees of the Pall UK Pension Fund was based on future values of its LifeMetrics longevity index – a toolkit for measuring longevity and mortality risk in England and Wales, the US, Netherlands and Germany.

"Index-based hedges are particularly well suited to hedging the longevity risk of pension plans with significant deferred and active members," David Epstein, head of longevity structuring at JP Morgan, said.

JP Morgan is the hedge provider and collateral custodian for the deal, which was set up by the investment manager Schroder, to cover the British pension scheme liabilities relating to about 1,800 members with assets of £120m.

Only a handful of longevity swaps have been agreed for pension schemes in Britain – around £8bn in the past five years according to specialist insurer Pension Insurance Corporation.

The biggest so far involved the German car maker BMW which last December offloaded £3bn of risk from its British pension scheme to Deutsche Bank's insurance subsidiary Abbey Life.

Previous longevity deals have focused solely on pension plan members who have already retired, as hedging against increased life expectancy of members still working has been difficult to measure, JP Morgan said.

The index-based longevity swap with the trustees of the Pall Pension Fund, which is part of the global manufacturer Pall Corporation, has a 10-year term in which the fund's trustees can choose to adjust the size or structure of the deal. If the life expectancy improves at a greater rate than specified in the contract the fund receives an insurance payout.

JP Morgan is backing the Life & Longevity Markets Association, an organisation of investment banks, insurers, brokers and pension providers set up last year to construct capital market instruments to divide longevity risk into tradable portions.

The first longevity risk bond was issued by Swiss Re in December, which passed on $50m (£31m) of its own longevity exposure to the capital market in a bond format.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific