Underestimating life expectancy is a costly business

Brian Spence

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Many final salary pension schemes will see liabilities jump on the back of a change in tack by the Pensions Regulator.

Schemes are now expected to take a harder line on the assumptions they make about future annual improvements in life expectancy. Those that make assumptions weaker than the Long Cohort assumption can expect to come in for further scrutiny.

Research from actuarial and consultancy firm Spence & Partners suggests that schemes that have previously used Medium Cohort assumptions will see a 9% increase in liabilities for a 65 year old male retiring in 2028, when moving to Long Cohort assumptions.

Given that many schemes only review their mortality assumptions on a triennial basis, their calculations could already be significantly weaker than required by the Pensions Regulator, leaving them with a serious funding gap in their provisions.

Scheme sponsors and trustees need to be aware of the impact of these improvements in mortality on their scheme as soon as possible to allow them to take informed decisions.

For a more detailed look at this issue, please read the article The Pension Regulator and Life Expectancy on the Spence and Partners website.

For further information please contact David Davison at Spence & Partners (www.spenceandpartners.co.uk) on 0141 331 1004.

Issued on behalf of Spence & Partners by Blueprint Media tel 0141 353 1515
Date: March ’08

Brian Spence

Post by Brian Spence

Fellow of the Institute and Faculty of Actuaries and Society of Actuaries in Ireland, scheme actuary, professional pension trustee

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