BAE Systems has agreed a longevity swap with Legal & General in a transaction classed as the “single largest pensions insurance transaction in the UK to date”.

The arrangement for BAE Systems 2000 Pension Plan will insure against the longevity risk of its 31,000 current pensioners and will cover £2.7 billion of liabilities on its funding assumptions.

This is equivalent to £3.2 billion of liabilities using a Libor swap curve discount rate. Pensioners will see no changes to its administration.

Aon Hewitt was the lead adviser for the company’s plan which will see Legal & General retain 30 per cent of the longevity risk while the remaining 70 per cent will be reinsured by Hannover Re.

BAE Systems group pensions director Nigel Tinsley said: “We are pleased to have worked with Legal & General and Aon Hewitt to develop this innovative approach to managing risk exposure within the BAE Systems 2000 Pension Plan. This arrangement offers us a flexible approach to managing the key risk of longevity in the plan. We are particularly pleased that we were able to complete the process in a structured and straightforward fashion within six months.”

Aon Hewitt partner and head of risk settlement Martin Bird said: “We worked closely with BAE Systems and the trustees of the plan on this significant transaction. The insurance arrangement is fully collateralised and tailored to reflect the plan's unique profile, bringing together structuring capability and market capacity to enhance members’ security and reducing the funding volatility in the plan.”

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