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The use of conservative longevity assumptions will increase the liability of pensions schemes, according to PensionsFirst.

The Pension Regulator is pushing to use more conservative longevity assumptions which will have the effect of increasing liabilities for the majority of schemes by up to 8 per cent and for one-third up to 20 per cent, according to PensionsFirst who securitise risks associated with defined benefit pension schemes. The Pension Insurance Corporation launched a similar product last week.

Timothy Lyons, founding partner of PensionsFirst, said that before the creation of PensionsFirst there were two ways that managers of pensions schemes could manage their risk, either by using bulk annuity or through liability-driven investment strategies.

Lyons said there were tools available to help manage inflation, interest rates and equity risks, adding that he knew of no tools that assist with longevity risk on a scheme specific basis.

Mr Lyons said: "If we provide a bond to a pension scheme that mirrors its obligations to scheme members we are effectively taking on all the risk embedded in that scheme. We are providing an asset to the scheme, mirroring its liability. In doing that we are creating a liability in our own balance sheet.

"Having done that, we then need to manage that risk, which is one of the ways we sell down exposure to longevity in other investors. Our methodology allows us to distribute to slice all components of risk in a pensions scheme and manage them in the most efficient way."

David Blake, director of the Pensions Institute, said there are two ways of dealing with longevity risk, namely through insurance companies like Paternoster, Legal & General and Prudential, and through capital market routes.

He said: "The insurance route hedges the full exposure that the pension plans for. The buy-out route takes the full longevity risk off the books of planned sponsors at a relative high price, it is around 20 per cent of the value of the liabilities.

"The capital market solution uses bonds and swaps. PensionsFirst and JPMorgan both use a type of bond, they will not fully hedge the risk but they are much cheaper. The buy-out, once it happens, is irreversible, but with capital market instruments you can trade.

"The PensionsFirst bond is tailored, made to the specific longevity risk experience of a particular pension plan. If you are going to tailor a bond to one specific client that bond will not really be traded, so you will have a very thin market in that product."