By Simon Challis

LONDON (Reuters) - Occupational pension funds can now insure themselves against the risk of scheme members living longer than expected through the first longevity policy on the market, said Pension Corporation, which is offering the cover.

Available from its insurance firm -- regulated by the Financial Services Authority -- the policy reimburses pension plans for retirement payments made to members who defy longevity expectations, Pension Corporation said on Thursday.

Pension funds that buy the insurance policy -- which will expire when the last member of the scheme or their dependent has died -- will pay a premium that is fixed at the outset.

Rival policies are based on a longevity index of the general population and only give cover for a defined period.

Increasing life expectancy has become a headache for firms that run defined-benefit pension schemes, which guarantee members an income in retirement linked to their final salary.

Members who survive longer than expected add billions of pounds to pension funds' liabilities.

Pension consultants said the move would relieve schemes of their biggest risk but the key to its success would be the cost.

John Fitzpatrick, partner at Pension Corporation and director of its insurance arm, told Reuters premiums would depend on the extent of scheme benefits and how long Pension Corporation estimates its pensioners will live based on its own longevity data.