The BT Pension Scheme has announced the completion of a £16bn longevity swap, the largest such deal to date in the UK and three times the size of the previous record.

The BTPS transferred longevity risk to a wholly-owned insurance company set up by the trustee. In turn, the company has reinsured the longevity risk with The Prudential Insurance Company of America. The deal covers 25 per cent of the BTPS’s total exposure to improvements in longevity.

The scheme was advised by Towers Watson, Allen and Overy, and Hogan Lovells. The sponsor was advised by Aon Hewitt.

Towers Watson senior consultant Ian Aley said the transaction is three times bigger than anything a UK pension scheme has put in place before – a record that was only set this year.

“A strong appetite from reinsurers means that very large deals are now possible. A ground-breaking structure also meant that there was no intermediary wanting to limit how much risk passed through its balance sheet,” Aley said.

According to the BTPS, the insurance policy will provide long-term protection and income to the scheme in the event that members live longer than currently expected.

By using a wholly-owned insurer, the trustee was able to access capacity in the global insurance and reinsurance market directly and achieve the best value for the scheme, the BTPS added.

Aon Hewitt senior partner Martin Bird said: “Together with recent large buy-in transactions for ICI and Total, the BT longevity swap underlines the continued focus on pensions de-risking and demonstrates that the market is open to the 'mega-funds'.”

The longevity insurance policy will form part of the scheme’s investment portfolio. These arrangements will not require additional contributions to be made by BT.

Earlier this year, the second and third largest deals took place after the Aviva Staff Pension Scheme completed a £5bn longevity swap and ICI Pension Fund secured a £3bn buy-in with Legal and General.

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