Longevity insurance

A policy that protects the pension scheme against the risk that members live longer than expected.

Longevity insurance at a glance

An insurance policy that removes the longevity risk from the scheme, giving certainty over the length of time that the scheme will be required to make payments.
  • Typically only applies to pensioner members.
  • The scheme pays a monthly insurance premium and in return receives payments from us in relation to the benefits of covered members.
  • There is no upfront premium and the trustees retain control of the scheme’s assets.
  • Can be combined with a fully matched investment strategy to create a 'DIY buy-in' as part of a self-sufficiency strategy or wider de-risking plan.

What does it do?

  • Longevity insurance provides protection to a pension scheme against the risk that members live longer than expected.  As such, it gives certainty to the trustees and sponsoring employer on the length of time they will be required to make benefit payments to members.
  • Whilst longevity risk is one of the main risks faced by a scheme, this type of insurance does not cover other risks such as inflation risk and interest rate risk.

How does it work?

  • A schedule of insurance premium payments is agreed and these are paid to us by the trustees from the pension scheme. These premium payments are often referred to as the ‘fixed leg’ as the payments are defined and do not depend on when members die. Unlike in a buy-in or buyout, there is no upfront premium and the scheme assets remain under the control of the trustees.
  • In return for the regular premium payments, we agree to pay the benefits set out in the policy for the covered members until they die along with any death benefits, such as dependants’ pensions.
  • These benefit payments are often referred to as the ‘floating leg’ as the payments vary and depend on when members die.
  • Both the fixed and floating legs are typically increased each year to reflect any pension increases in payment granted by the scheme.
  • The trustees and sponsoring employer retain ultimate responsibility for meeting members’ benefits, although they are protected against longevity risk under the policy.
  • The contract can also be structured to allow for future conversion to buy-in or buyout.