Bosses fail to address increasing scheme member longevity

Some of the country’s largest firms are ignoring the threat of increased member longevity and have failed to increase their assumptions, analysis of accounts reveals.

Longevity analysis firm Club Vita scrutinised the 2010 annual accounts of 118 FTSE350 companies with defined benefit pension schemes.

It found 57 of these had not increased their longevity assumptions - despite male life expectancy at age 65 increasing by more than three months a year.

However, the company said the remaining 61 schemes had increased assumptions by almost six months on average.

It said the move would have increased disclosed liabilities by £700m and would have a £5bn impact if replicated across the whole FTSE350.

Club Vita longevity consultant Andrew Gaches (pictured) said: "Longevity continues to be the biggest unmanaged risk for pension schemes. For every extra year that a pension scheme's members live, they face an increase in liabilities of approximately 3%.

"That's a significant increase, and one that companies need to be aware of and keep on top of sooner rather than later.

"While it's encouraging to see some schemes getting to grips with rising life expectancy, there is still a worrying lack of action from many others. Longevity is going to keep increasing and schemes need to keep up with this. Otherwise they risk a substantial bump in the road down the line as they run into a large, unplanned-for increase in their liabilities."

He added some schemes could also be dealt a second blow if they have used inaccurate longevity assumptions when designing a liability-driven investment strategy.

"Schemes need a broader risk management strategy in place, and accurate longevity assumptions very much need to be a part of that," he said.

Analysis found four firms - Wolseley; Britvic; Reckitt Benckiser Group; and Land Securities Group had increased life expectancy by more than a year. A further eight increased their assumptions by one year.

However, five companies made negative revisions to mortality assumptions.

Marston's; Hays; Ashtead Group; Astra Zeneca; and the London Stock Exchange all reduced life expectancy predictions.

Gaches added: "It may at first appear worrying that some schemes are reducing their life expectancy assumptions, and could be taken as evidence that schemes are packing away bad news for the future. There may be a logical reason for this however, particularly if a scheme's membership is heavily biased towards a particular region, demographic or other variable."

He added it highlighted that every scheme was different.