Question 1 of 3

Q. How big is your defined benefit scheme?

Question 2 of 3

Q. How mature is your defined benefit scheme?

Please select an answer before continuing to the next page

Question 3 of 3

Q. Do you intend to use insurance de-risking solutions as part of your scheme’s long-term plan?

Please select an answer before continuing to the next page

What you told us

Small - A scheme under £100m

Mature - Pensions in payment make up at least half of the scheme’s liabilities

Yes - Intend to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As the majority of your members are now drawing their pension, you are likely to have already taken steps to address your investment, interest rate and inflation risks. This means that longevity could be the largest, unaddressed risk you face.

Your scheme size means that base table and individual risk will dominate your longevity risk, as there is less data to determine your scheme’s mortality rates and you are exposed to cost uncertainties simply from the timing of individual deaths. This is particularly true if a small number of high-earning members account for a large proportion of your liabilities.

The insurance market now offers a wide range of options for smaller schemes to cost-effectively hedge longevity risk - for example, through a pensioner buy-in. And, because an insurer is able to diversify longevity risk across a large number of lives, these transactions can represent particularly good value for money for smaller schemes (as the individual risk arising from the timing of individual deaths can essentially be removed at no cost).

How can LCP LifeAnalytics help...

  • Understanding the significance of longevity risk in the context of your other risks, for example as part of a buy-in feasibility study
  • Demonstrating intent to insurers to help maximise the chance of receiving a competitive price
  • Assessing the value-for-money of pricing put forward by insurers for a buy-in transaction
  • Building an internal business case for a transaction
  • Meeting the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

How smaller schemes can avoid being crowded out of the buy-out market

De-risking your small scheme using buy-ins or buy-out

A streamline process to complete £20m full buy-out in rapid timescale

Small - A scheme under £100m

Mature - Pensions in payment make up at least half of the scheme’s liabilities

No - Not planning to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As the majority of your members are now drawing their pension, you are likely to have already taken steps to address your investment, interest rate and inflation risks. This means that longevity could be the largest, unaddressed risk you face.

Your scheme size means that base table and individual risk will dominate your longevity risk, as there is less data to determine your scheme’s mortality rates and you are exposed to cost uncertainties simply from the timing of individual deaths. This is particularly true if a small number of high-earning members account for a large proportion of your liabilities.

A common myth is that there are no cost-effective options to hedge longevity for smaller pension schemes. This doesn’t have to be case though, as well-prepared schemes running efficient processes can achieve competitive pricing from insurers, even for transactions smaller than £10m.

Buy-in transactions can be particularly efficient for reducing risk for smaller schemes if you are invested in government bonds.

How can LCP LifeAnalytics help...

  • Get a complete picture of risks you are running so that you can make a well-informed decision (or confirm existing views) on whether or not to hedge longevity risk
  • Set an appropriate hedging strategy by better understanding the variability in how long members live and how this impacts the cashflows your strategy is trying to match
  • Ensure your funding assumptions make appropriate allowance for the longevity risks you are exposed to
  • Meeting the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

Small schemes: do you know which risks you’re facing?

Is insurance a rip off?

A streamline process to complete £20m full buy-out in rapid timescale

Small - A scheme under £100m

Less mature - Still growing in fund size and membership

Yes - Intend to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As a less mature scheme, you may be choosing to run some investment and interest rate risk given your longer time horizon. As a result, there may be other risks (such as interest rates, inflation or investment risk) that you would prefer to address before tackling longevity.

Gaining a complete picture of your longevity risk will help you to validate your plans for reducing other risks, as well as helping you understand when might be an appropriate time to hedge longevity risk. This can make sure that longevity risk does not become too dominant as investment risks are reduced.

Many schemes find that the most efficient strategy is to reduce longevity and investment risks in parallel. A short-to-medium term buy-in would also help to protect the scheme against the risk of price increases from insurers in future and would develop a longer-term relationship with insurers for future transactions.

If you are exploring the use of hedging strategies (for example, through government bonds or LDI), it can also be helpful to understand your longevity risk and how this impacts the cashflows your strategy is trying to match.

How can LCP LifeAnalytics help...

  • Deciding on the right time for insurance de-risking, for example through a buy-in, compared with other de-risking actions
  • Showing the variability in how long members live and how this might impact your wider investment and hedging strategy
  • Meeting the Pension Regulator’s guidance on Integrated Risk Management

And, when the time is right LCP LifeAnalytics can help with:

  • Buy-in feasibility study
  • Assessing value for money of an insurance transaction
  • Demonstrating intent to the insurers to help maximise the chance of receiving a competitive price
  • Building an internal business case for a transaction

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

Small schemes: do you know which risks you’re facing?

De-risking your small scheme using buy-ins or buy-out

A streamline process to complete £20m full buy-out in rapid timescale

Small - A scheme under £100m

Less mature - Still growing in fund size and membership

No - Not planning to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As a less mature scheme, you may be choosing to run some investment and interest rate risk given your longer time horizon. As a result, there may be other risks (such as interest rates, inflation or investment risk) that you would prefer to address before tackling longevity.

Gaining a complete picture of your longevity risk will help you to validate your plans for reducing other risks, as well as helping you understand when might be an appropriate time to hedge longevity risk. This can make sure that longevity risk does not become too dominant as investment risks are reduced.

If you are exploring the use of hedging strategies (for example, through government bonds or LDI), it can also be helpful to understand your longevity risk and how this impacts the cashflows your strategy is trying to match.

How can LCP LifeAnalytics help...

  • Get a complete picture of risks you are running so that you can make a well-informed decision (or confirm existing views) on whether or not to hedge longevity risk
  • Set an appropriate hedging strategy by better understanding the variability in how long members live and how this impacts the cashflows your strategy is trying to match
  • Ensure your funding assumptions make appropriate allowance for the longevity risks you are exposed to
  • Meet the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

Small schemes: do you know which risks you’re facing?

Growth liability-driven investment funds

A streamline process to complete £20m full buy-out in rapid timescale

Medium - A scheme under £500m

Mature - Pensions in payment make up at least half of the scheme’s liabilities

Yes - Intend to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As the majority of your members are now drawing pension, you are likely to have already taken steps to address your investment, interest rate and inflation risks. This means that longevity may well now be the largest, unaddressed risk you face.

Your scheme size means that longevity improvements and, potentially, individual risk will dominate. A buy-in would be a cost-effective way to reduce these risks, potentially using a “top-slice” buy-in if there is a concentration of large pensions in payment.

As a medium sized scheme, there are a number of options available to you to cost-effectively hedge longevity risk. Undertaking an initial buy-in transaction (even if it doesn’t cover all of your pensioner population) enables you to start addressing longevity risk and will ensure you are well positioned to take advantage of future opportunities.

As well as protecting against longevity risk, such a strategy can help to manage liquidity for mature schemes, particularly if you are, or are close to being, cash flow negative.

Recent developments in the longevity swap market mean that longevity swaps are now also becoming a realistic, cost-effective solution for medium sized schemes looking to manage longevity risk.

How can LCP LifeAnalytics help...

  • Buy-in and longevity swap feasibility studies, including obtaining indicative pricing from insurers or reinsurers in a cost-effective way
  • Assessing value for money of a buy-in or longevity swap
  • Demonstrating intent to the reinsurers / insurers to help maximise the chance of receiving a competitive price
  • Building an internal business case for a transaction
  • Meeting the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

Using top-slicing effectively as part of your pensions de-risking strategy

How to get ahead when targeting pension buy-out

A £350m buy-in for Tate & Lyle

Medium - A scheme under £500m

Mature - Pensions in payment make up at least half of the scheme’s liabilities

No - Not planning to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As the majority of your members are now drawing pension, you are likely to have already taken steps to address your investment, interest rate and inflation risks. This means that longevity may well now be the largest, unaddressed risk you face.

Your scheme size means that longevity improvements and, potentially, individual risk will dominate.

Gaining a complete picture of your longevity risk in the context of your scheme’s other unhedged risks will help you to make an informed decision on whether or not to hedge longevity risk and, if so, when. This can help make sure that longevity risk does not become too dominant as investment risks are reduced.

If you are exploring the use of hedging strategies (for example, through government bonds or LDI), it can also be helpful to understand your longevity risk and how the potential uncertainty in the scheme’s benefit payments might impact the cashflows your strategy is trying to match.

Finally, understanding your longevity risk will ensure that you build appropriate margins into your long term self-sufficiency target for any longevity risks you will remain exposed to.

How can LCP LifeAnalytics help...

  • Get a complete picture of risks you are running so that you can make a well-informed decision (or confirm existing views) on whether or not to hedge longevity risk
  • Set an appropriate hedging strategy by better understanding the variability in how long members live and how this impacts the cashflows your strategy is trying to match
  • Ensure your funding assumptions make appropriate allowance for the longevity risks you are exposed to
  • Meet the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

How understanding longevity risk leads to better investment decisions

Is insurance a rip off?

A £350m buy-in for Tate & Lyle

Medium - A scheme under £500m

Less mature - Still growing in fund size and membership

Yes - Intend to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As a less mature scheme, you may be choosing to run some investment and interest rate risks given your longer time horizon. As a result, there may be other risks (such as interest rates, inflation or investment risk) that you would prefer to address before tackling longevity.

Gaining a complete picture of your longevity risk will help you to validate your plans for reducing other risks, as well as helping you understand when might be appropriate to hedge longevity risk. This can make sure that longevity risk does not become too dominant as investment risks are reduced.

Many schemes find that the most efficient strategy is to reduce longevity and investment risks in parallel. A short-to-medium term buy-in would help protect the scheme against price increases from insurers in future and would develop a longer-term relationship for future transactions.

Recent developments in the longevity swap market mean that longevity swaps are now also becoming a realistic, cost-effective solution for medium sized schemes looking to manage longevity risk, particularly for those schemes who are still running a meaningful level of investment risk.

If you are exploring the use of hedging strategies (for example, through government bonds or LDI), it can also be helpful to understand your longevity risk and how this impacts the cashflows your strategy is trying to match.

How can LCP LifeAnalytics help...

  • Deciding on the right time for insurance de-risking, for example through a buy-in, compared with other de-risking actions
  • Showing the variability in how long members live and how this might impact your wider investment and hedging strategy
  • Meeting the Pension Regulator’s guidance on Integrated Risk Management

And, when the time is right LCP LifeAnalytics can help with:

  • Buy-in feasibility study
  • Assessing value for money of an insurance transaction
  • Demonstrating intent to the insurers to help maximise the chance of receiving a competitive price
  • Building an internal business case for a transaction

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

How understanding longevity risk leads to better investment decisions

How to get ahead when targeting pension buy-out

A £350m buy-in for Tate & Lyle

Medium - A scheme under £500m

Less mature - Still growing in fund size and membership

No - Not planning to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As a less mature scheme, you may be choosing to run some investment and interest rate risks given your longer time horizon. As a result, there may be other risks (such as interest rates, inflation or investment risk) that you would prefer to address before tackling longevity.

Gaining a complete picture of your longevity risk will help you to validate your plans for reducing other risks, as well as helping you understand when might be appropriate to hedge longevity risk. This can make sure that longevity risk does not become too dominant as investment risks are reduced.

Many schemes find that the most efficient strategy is to reduce longevity and investment risks in parallel. If you are exploring the use of hedging strategies (for example, through government bonds or LDI), it can also be helpful to understand your longevity risk and how this impacts the cashflows your strategy is trying to match.

Finally, understanding your longevity risk will ensure that you build appropriate margins into your long-term self-sufficiency target for any longevity risks you will remain exposed to.

How can LCP LifeAnalytics help...

  • Get a complete picture of risks you are running so that you can make a well-informed decision (or confirm existing views) on whether or not to hedge longevity risk
  • Set an appropriate hedging strategy by better understanding the variability in how long members live and how this impacts the cashflows your strategy is trying to match
  • Ensure your funding assumptions make appropriate allowance for the longevity risks you are exposed to
  • Meet the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

How understanding longevity risk leads to better investment decisions

Is insurance a rip off?

A £350m buy-in for Tate & Lyle

Large - A scheme over £500m

Mature - Pensions in payment make up at least half of the scheme’s liabilities

Yes - Intend to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As the majority of your members are now drawing pension, you are likely to have already taken steps to address your investment, interest rate and inflation risks. This means that longevity risk could be the largest, unaddressed risk you face.

Your scheme size means that base table and individual risk will be relatively small, so your key risk exposure is to longevity improvements over time. As a larger scheme, you have the choice of hedging longevity risk using a longevity swap or a series of staged buy-ins over time, or indeed a combination of both.

A strategy of staged buy-ins can help to move quickly to take advantage of competitive pricing and benefit from the contractual terms already in place with one or more insurers, as well as improving liquidity as the scheme becomes cashflow negative.

Recent developments in structuring have provided new flexibility to use longevity swaps without being a barrier to future buy-ins or ultimate buy-out.

Finally, a “top-slice” buy-in, structured in the right way, can sit alongside other buy-ins or a longevity swap as a way to cost-effectively hedge the individual risk for a group of larger pensions in payment within the wider pensioner population.

How can LCP LifeAnalytics help...

  • Deciding on the right time for longevity de-risking, by comparing the “bang for buck” of various de-risking options
  • Buy-in and longevity swap feasibility studies, including obtaining indicative pricing from insurers or reinsurers in a cost-effective way
  • Assessing value for money of a buy-in or longevity swap
  • Demonstrating intent to the reinsurers / insurers to maximise the chance of receiving a competitive price
  • Building an internal business case for a transaction
  • Meeting the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

Longevity swaps – do they create a barrier to buy-in or ultimate buy-out?

Phased de-risking – how our clients are achieving success

The ICI Pension Fund's de-risking journey

Large - A scheme over £500m

Mature - Pensions in payment make up at least half of the scheme’s liabilities

No - Not planning to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As the majority of your members are now drawing pension, you are likely to have already taken steps to address your investment, interest rate and inflation risks. This means that longevity risk could be the largest, unaddressed risk you face.

Your scheme size means that base table and individual risk will be relatively small, so your key risk exposure is to longevity improvements over time.

Gaining a complete picture of your longevity risk in the context of your scheme’s other unhedged risks will help you to make an informed decision on whether to hedge longevity risk and, if so, when. This can help make sure that longevity risk does not become too dominant as investment risks are reduced.

If you are exploring the use of hedging strategies (for example, through government bonds or LDI), it can also be helpful to understand your longevity risk and how the potential uncertainty in the scheme’s benefit payments might impact the cashflows your strategy is trying to match.

Finally, understanding your longevity risk will ensure that you build appropriate margins into your long-term self-sufficiency target for any longevity risks you will remain exposed to.

How can LCP LifeAnalytics help...

  • Get a complete picture of risks you are running so that you can make a well-informed decision (or confirm existing views) on whether or not to hedge longevity risk
  • Set an appropriate hedging strategy by better understanding the variability in how long members live and how this impacts the cashflows your strategy is trying to match
  • Ensure your funding assumptions make appropriate allowance for the longevity risks you are exposed to
  • Meet the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

How understanding longevity risk leads to better investment decisions

Is insurance a rip off?

The ICI Pension Fund's de-risking journey

Large - A scheme over £500m

Less mature - Still growing in fund size and membership

Yes - Intend to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As a less mature scheme, you may be choosing to run some investment and interest rate risk given your longer time horizon. You may still at the same time want to make a start hedging longevity risk - both to lock into current favourable pricing for a proportion of your liabilities, and so as to ensure that longevity risk does not become too dominant as investment risks are reduced.

Your scheme size means that base table and individual risk will be relatively small, so your key risk exposure is to longevity improvements over time.

A strategy of hedging longevity risk using a longevity swap or a series of staged buy-ins over time will be an efficient approach to reduce longevity risks in parallel with investment risks. The contracts can be structured so that you can move quickly to take advantage of the same terms when pricing is competitive for further tranches of liability in future.

Finally, if you will ultimately be targeting buy-out, bear in mind that this is not a static target, and the cost of insuring your liabilities may be different in future from what it is today.

Starting to lock-into some of this price now through an initial transaction can be a useful strategy for protecting against this risk.

How can LCP LifeAnalytics help...

  • Deciding on the right time for insurance de-risking, for example through a buy-in, compared with other de-risking actions
  • Showing the variability in how long members live and how this might impact your wider investment and hedging strategy
  • Meeting the Pension Regulator’s guidance on Integrated Risk Management

And, when the time is right LCP LifeAnalytics can help with:

  • Buy-in feasibility study
  • Assessing value for money of an insurance transaction
  • Demonstrating intent to the insurers to help maximise the chance of receiving a competitive price
  • Building an internal business case for a transaction

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

How understanding longevity risk leads to better investment decisions

Phased de-risking – how our clients are achieving success

The ICI Pension Fund's de-risking journey

Large - A scheme over £500m

Less mature - Still growing in fund size and membership

No - Not planning to use a buy-in, buy-out or longevity swap

What might longevity risk look like in your scheme?

As a less mature scheme, you may be choosing to run some investment and interest rate risk given your longer time horizon. As a result, there may be other risks (such as interest rates, inflation or investment risk) that you would prefer to address before tackling longevity.

Gaining a complete picture of your longevity risk will help you to validate your plans for reducing other risks, as well as helping you understand when might be appropriate to hedge longevity risk. This can make sure that longevity risk does not become too dominant as investment risks are reduced.

Many schemes find that the most efficient strategy is to reduce longevity and investment risks in parallel.

If you are exploring the use of hedging strategies (for example, through government bonds or LDI), it can also be helpful to understand your longevity risk and how this impacts the cashflows your strategy is trying to match.

Finally, understanding your longevity risk will ensure that you build appropriate margins into your long-term self-sufficiency target for any longevity risks you will remain exposed to.

How can LCP LifeAnalytics help...

  • Get a complete picture of risks you are running so that you can make a well-informed decision (or confirm existing views) on whether or not to hedge longevity risk
  • Set an appropriate hedging strategy by better understanding the variability in how long members live and how this impacts the cashflows your strategy is trying to match
  • Ensure your funding assumptions make appropriate allowance for the longevity risks you are exposed to
  • Meet the Pension Regulator’s guidance on Integrated Risk Management

Learn more about LCP LifeAnalytics

Latest thinking on longevity

Thought-leadership report

Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report

Related resources

How understanding longevity risk leads to better investment decisions

Is insurance a rip off?

The ICI Pension Fund's de-risking journey

Contact us to discuss your pension scheme’s longevity risk

Michelle Wright

Partner

Email: Michelle.Wright@lcp.uk.com

Telephone: +44 (0)20 7432 3073

Myles Pink

Partner

Email: Myles.Pink@lcp.uk.com

Telephone: +44 (0)20 7432 3067

Tom Porter

Partner

Email: Thomas.Porter@lcp.uk.com

Telephone: +44 (0)20 7432 3063