LONDON (ShareCast) - Engineering (Milan: ENG.MI - news) support services company Babcock International has put a liabilities cap on
one of its defined benefit
pension schemes.
The trustees of Babcock’s Devonport Royal Dockyard Limited defined benefit pension scheme have entered into a contract with Credit Suisse to limit their exposure to the effect of increase life expectancy on pensions in payment.
It is the first transaction of its type entered into by a UK company sponsored pension scheme.
The exposure has been capped by the use of longevity swaps whereby the scheme will receive payments from Credit Suisse should the members and dependants covered live beyond a pre-defined age.
Babcock has agreed to fund the net present value of the swap premium over a period of 20 years.
At 31 March 2009 the group's defined benefit pension liabilities and assets were each valued at approximately £1.7bn and yielded a net balance sheet surplus of £52 million.
Some £800m of the liabilities were in respect of pensions in payment and in this, the first of three proposed transactions, around £300m of this amount has been capped by the use of longevity swaps.
The final transactions to cap a further £450m of the longevity risk in pensions in payment liabilities are expected to be completed by the end of September 2009.
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