If life insurance is a precaution in case we kick the bucket before we had planned to, then this is its rather maudlin reverse: ITV, the beleaguered broadcaster, has taken out an insurance policy with Credit Suisse as a precaution against its employees living. Well, sort of: the deal, known as a longevity swap, protects ITV against the financial risks of the 12,000 people still on its final salary pension scheme living longer than it had originally planned for. So not quite death insurance. But almost…
The interesting thing about the deal, which is reputedly worth £1.7bn over its alleged 70-year lifespan, is how infrequently ones like this are struck. Other notable longevity swaps include engineering firm Babcock International, which forked out £500m on protecting itself against its retired employees living for longer, while RSA (the insurer, rather than the Royal Society of Arts) spent £1.9bn with a subsidiary of Goldman Sachs, and BMW spent a staggering £3bn on a contract with Deutsche Bank. Which makes the ITV deal the third-biggest longevity swap ever carried out. But the number of deals being made is expected to dramatically increase over the next few years, as people live longer.
It’s not the first time the company has tried to protect itself from the risks posed by its final-salary scheme (under which people are paid the same amount they were earning when they retire). Back in 2009, more than 20,000 members of its scheme were asked to take a one-off increase in the value of their pension as a substitute for inflationary increases. These days, its pension scheme has a deficit of £312m (admittedly a lot less than 2009 figure of £646m), and although this deal will add another £50m to that, it won’t have to pay anything into the scheme until 2015. So the swap not only gives it a little bit of wiggle room, but also (as ITV FD Ian Griffiths pointed out), it removes a ‘significant risk’.
Perhaps it’s hoping that as a thanks, all its grateful pensioners will boost the ratings by watching Gary Barlow on X-Factor…
This article was first published on managementtoday.co.uk