UK - Pension schemes are underestimating the extent of mortality rate improvements that will apply to their liabilities by up to £175bn, according to Paternoster.
Referring to two separate scenarios - whereby mortality rate improvements continue to accelerate indefinitely, and whereby the trend in improvements reverses - Richard Willets, Paternoster’s actuarial adviser, said pension scheme liabilities were being understated by approximately £175bn and £75bn respectively.
He added that at present, changes in life expectancy and retirement were “without precedence” in our entire history. In 1841, the mortality rate for men in England and Wales aged 65-74 was 6.6%, while by 2007 it is expected to have fallen to around 2.26%.
Office for National Statistics (ONS) figures announced recently revealed life expectancy at age 65 in the UK had reached the highest level ever for both men and women.
According to the ONS, in 2003-05 the life expectancy at age 65 was a further 16.6 and 19.4 years for females and males respectively. When adjusted to include projected future improvements, these rise to 19.7 and 22.3 years.
However Paternoster research carried out by Willets suggests these figures could be significantly higher: in the range of 20-22 years for males and 23-24 years for females.
Meanwhile, Mark Wood, Paternoster CEO, said 100 companies with approximately £10bn in assets were currently either considering or about to agree on a buy-out solution.
Paternoster, the bulk annuity buy-out firm, was launched to take on the liabilities of companies with final salary or defined benefit pension schemes. Earlier this month, the firm announced it had taken on the pension assets of the Cuthbert Heath Family Plan in a deal worth £10m.
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