Improving life expectancy cost UK companies an additional £20bn in pension liabilities in 2005, according to research from professional service firm KPMG.
The survey of more than 200 UK companies of all sizes found that firms are assuming that workers will live for nearly one year longer on average, compared to 2004.
This extra year equates to an estimated £20bn extra in pension liability on top of a collective liability of about £500bn for all quoted companies in the UK.
The survey also revealed that companies are having difficulty with the uncertainty about future mortality rates.
The assumption that the next generation of retirees will live nearly one year longer has led UK quoted companies to set aside about £10bn to cover the uncertainty of future improvements in life expectancy.
The research also found that there is a wide disparity between the life expectancy assumptions being made. In the financial sector, there was a range between the highest and lowest assumptions of more than five years for present retirees, while in other sectors the range was about nine years.
Alastair McLeish, head of KPMG’s pensions practice, said: “It is important that the life expectancy assumptions made by companies are clearly communicated so that investors and analysts can properly understand the basis on which a pension liability has been calculated.
“Otherwise there is a danger that pension liabilities are simply a numbers game determined by an almost arbitrary set of assumptions.”
Research exposes wide variation in estimates of pension fund shortfalls
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