The fixed payment is based on an agreed longevity assumption. In an indemnity-based swap, the taker's payment follows the actual pensions of the covered pensioners. In an index-based swap, it follows an agreed population index.
Consider a hypothetical example in which a pension fund makes fixed payments totaling 4.50 billion yen over five years to the taker. If pensioners live longer and actual pensions reach 4.70 billion yen, the fund receives the 0.20 billion yen difference. If they die earlier and actual pensions are 4.30 billion yen, the fund pays 0.20 billion yen, and in both cases the fund's net cost is 4.50 billion yen.
The swap covers longevity risk only, not asset-side risk. It differs from a buy-out, which moves the whole pension to an insurer, in the range of risks transferred.