The smallest ever longevity hedge at just £50m has been completed by Zurich Assurance for an unnamed pension scheme.

The deal is the fourth of its kind since Mercer, which acted as the lead adviser, announced the first streamlined deal in 2015 to help smaller pension schemes manage the financial risk of their members living longer.

The hedge, structured as a ‘whole of life’ insurance policy, will hedge against the risk of rising costs as a result of the current pensioners of the pension plan living longer than expected. The hedge is ‘named life’ meaning it covers around 90 named pensioners and future dependants.

BESTrustees chairman of the trustee Iain Urquhart explained that the pension plan had already decided that a bulk annuity was not desirable in the short to medium term and that the trustees were pleased to seize the early opportunity to hedge longevity risk for its pensioners and their dependants.

Mercer head of longevity reinsurance and lead transaction adviser Suthan Rajagopalan said: “This is the smallest ever named life longevity hedge at around £50m and follows on from the two streamlined longevity hedges completed by the Pirelli pension funds in August 2016 and also the previous smallest longevity hedge of around £90m in December 2015. Before these four transactions which total circa £750m, named life longevity hedges were exclusive to only the largest schemes with over £400m of pensioner liabilities and deal sizes averaged £2bn.

“These deals pave the way to competitive longevity reinsurance pricing for small and medium sized schemes which are more exposed to so-called ‘concentration risk’ where there is greater variability in members’ life expectancy due to diverse pension amounts in smaller populations.”

Zurich chief operations officer Jim Sykes said: “We are delighted to announce this transaction, which is the smallest of its kind completed in the market to date. The cost and complexity of carrying out a longevity hedge has typically precluded smaller schemes from de-risking in the past. This latest transaction shows how the streamlined solution can really make longevity risk hedging accessible to even the smallest pension schemes.”

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