FTSE 350 pension scheme liabilities reduce by £2.5bn

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FTSE 350 pension scheme liabilities reduce by £2.5bn

After years of increasing life expectancies, the stalling of mortality improvements in recent years is now leading employers to revise downwards their estimates of employee lifespans.

According to Mercer's latest analysis, this will shave £2.5bn off FTSE 350 pension scheme liabilities.

In 2016 year-end accounts, employers are typically assuming a 65-year-old woman will live to 89.5-years-old and a 65-year-old man to 87.5-years-old.

These figures are around three weeks less than when they reported in their 2015 year-end accounts.

The analysis looked at data from 94 UK pension schemes.

The consultancy estimated that, in isolation, this reduction trimmed £3m off every billion pounds of liabilities shown in the UK’s company accounts.

According to Mercer’s Pension Risk Report, at 30 December 2016, the pension liabilities for FTSE 350 employers were £857bn, so, in total, the adjustment has removed just over £2.5bn of liabilities from pension scheme balance sheets. 

Glyn Bradley, principal in Mercer’s innovation, policy and research team, said: “While, in the short-term, life expectancy increases have slowed, medical research, application of past breakthroughs, innovative use of technology and potential for lifestyle improvements all mean that lifespans will continue to increase.

“Overall, though, employers and trustees should continue to pay attention to improvements in mortality and use the latest data to ensure short-term improvements are not over-stated.

"Given the long-term direction of life expectancy, all companies and trustees should be investigating how they can remove the financial risk that it poses to their financial health." 

stephanie.hawthorne@ft.com