Legal & General is launching a new product designed to help small defined benefit schemes reduce their risk by providing an annuity for key individuals with large benefits.
The insurer is planning to launch its Large Individual Defined Benefit Annuity (LIDBA) product in the first quarter of 2010.
The product combines the philosophy of bulk purchase with individual pricing of annuities, allowing small schemes where liabilities are concentrated in the benefits due to one or a handful of individuals to take substantial levels of risk off their balance sheet.
L&G says longevity risk can have a destabilising effect for many small schemes, and removing key scheme members in this way can reduce that risk. By underwriting individual members and insuring their benefits through a LIDBA it is possible to save costs, it argues.
Tim Gosden, head of new product development at L& G says: “Many small schemes are not in a position to go for a full bulk purchase annuity, but by taking key individuals out of the equation it is possible to achieve real savings.”