£10bn added to pensions bill as the old get older

Continued improvements in life expectancy may have added as much as £10bn to
the pension fund liabilities of FTSE100 companies over the past three years.

Pensions advisers Aon Consulting, using the Government’s latest life
expectancy figures and the FRS17 accounting rules, predicts that for every year
of increased life expectancy, pension costs will rise by approximately 3.5 per
cent.

Paul McGlone, principal at Aon Consulting, said as life expectancy increases,
companies must ensure they factor this into their company pension provisions.

He said that failing to take into account just one extra year of life
expectancy when calculating pensions could cost companies millions if not
billions.

"Our advice to companies is to check, on an ongoing basis, that the
assumptions on which they base their pension provision are in line with the
latest life expectation figures as, as well as the experience of their
scheme."

McGlone said that new anti-age discrimination legislation – meaning that
companies will no longer be able to enforce a mandatory retirement age below
age 70 – will also impact on pensions.

He said that as people come to realise that their company and state pensions
will not provide for an adequate retirement, their natural reaction might be to
work longer.

The latest government figures show that there has been a 10 per cent
increase in the life expectancy of men over 65 since 2001. And male life
expectancy is expected to rise by an average of two years up to 2050.

Current life expectancy for men is just under 76, while women live to at
least 80.

The Department for Work and Pensions has launched a website providing advice
on changes to pensions.

By Quentin Reade

www.thepensionservice.gov.uk

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