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A product designed to help defined benefit pension schemes to mitigate their longevity risk has been launched by Life Trust Insurance.

The longevity risk manager pools the longevity risk of pension schemes and offers a new alternative to trustees and finance directors otherwise faced with the significant capital outlay of a buy-out or buy-in it added.

Many small and medium-sized pension schemes have a number of individual members with considerable benefits who, if they should exceed the average life expectancy, could cause the scheme to be under-funded.

This problem of a concentration of liabilities is referred to as non-systematic or idiosyncratic longevity risk. The longevity risk manager provides pension scheme trustees with a means of reducing this risk without the need for a major transfer of capital.

Andy Briscoe, chief executive of Life Trust, said there are two traditional methods of dealing with longevity risk: buy-outs and buy-ins.

Mike Tyler, head of strategy for Life Trust, said: "The size of the market that could benefit from the longevity risk manager is significant with more than 5000 small- and medium-sized schemes likely to be experiencing this type of idiosyncratic risk in their schemes. With liabilities equating to £200bn, covering 3.5m members, there is clearly a need for innovation like this in the market."

Tony Read, marketing manager of trustee solutions for Aegon, said that he agreed with the sentiments and it was a good idea.

He said: "One of the risks that defined benefit schemes have had to deal with is that people are living longer. This product is aiming at the small to medium enterprise market - there are lots of solutions at the top end. It is something that we are looking at and we are launching a product in this space."