UK - Companies will have to increase pension contributions because many schemes have underestimated their liabilities by up to 10%, consultants warn.
Mercer Human Resource Consulting’s analysis of initial results of the Actuarial Profession’s mortality investigation concludes that many schemes’ reserves against increases in life expectancy are inadequate.
As a result, Mercer claims that existing funding programmes need to be reviewed and that, in many cases, contributions will have to rise.
Mercer senior research actuary Deborah Cooper (pictured) said: “Scheme valuations are normally done every three years and there has been quite a lot of new information published about increases in longevity.
“It takes quite a while for schemes to catch up with the latest information, but in view of the funding difficulties they face because of markets, this is something they ought to take into account. Some schemes may have underestimated their liabilities by as much as 10%.”
Hewitt Bacon & Woodrow principal Raj Mody agreed and said that depending upon the scheme sponsor’s business sector, mortality increases could be better – or worse – than the general trend.
He added: “Firms need to expect that their deficit correction programmes are, in part, chasing an ever more difficult target. Just when they think they are making headway, an issue like this comes along.”
Watson Wyatt senior consultant Stephen Yeo also agreed but believes only a handful of schemes will have underestimated liabilities.
He said: “You’d have to be using something out of date and optimistic to end up like that. Only a small percentage of firms will have made no allowances for improvements in mortality.”
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