Babcock International has become the first UK company to hedge itself against the risk that its retirees will live much longer than expected in a move that is likely to be followed by a swathe of pension schemes.

The company said it had agreed a so-called longevity swap under which it will be compensated for the additional cost of providing monthly payments to those whose lifespan exceeds that now forecast. Such a risk has dramatically increased costs for defined benefit pension schemes over the past decade.