Rolls-Royce agrees pension fund longevity swap

Monday, 28 November 2011

Rolls-Royce and the Trustees of the Rolls-Royce Pension Fund have agreed a longevity swap that will give additional security to all members of the company’s final salary pension scheme. The contract with Deutsche Bank reduces the risk on approximately £3bn of the fund’s liabilities. The cost of this transaction will be borne by the pension fund and will have no material effect on the funding arrangements. Around 37,000 pensioners are covered by this agreement. 

Andrew Shilston, Rolls-Royce Finance Director, said: “We have made sure that as our pensioners live longer in retirement we have made proper provision for them. This is the latest in a series of measures we have taken to achieve greater certainty for our future funding requirements”.

Paul Spencer CBE, Chairman of the Rolls-Royce pension fund trustees said: “We have been working closely with Rolls-Royce for some years to enhance the security of all our members’ benefits. This is another important step forward.”

  1. Under the longevity swap the Trustees and the Bank have agreed an average life expectancy. If pensioners live longer than expected the Bank will make payments to the Fund to offset the additional cost of paying pensions. If the reverse applies the cost of paying pensions will be reduced but the Fund will be required to make payments to the Bank. This arrangement enables future liabilities to be predicted with more certainty.
  2. The Trustees were advised by Aon Hewitt (as lead adviser), Linklaters (as legal adviser) and Mercer (as investment adviser). State Street will act as credit support services manager and custodian.
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