UK - The national smoking ban in public places, which is expected to add £20bn to company pension deficits, could pressure the International Accounting Standards Board (IASB) to push for mortality rate assumptions to be disclosed by companies reporting under IAS17.
Kevin Wesbroom, pensions consultant at Hewitt Associates, said social policy changes such as the smoking ban highlight the need for the IASB to enforce such a requirement. Companies are not currently required to disclose the mortality assumptions they use when calculating deficits.
Hewitt’s figures show that even an average improvement of just one year in life expectancy increases the aggregate deficit of FTSE 100 pension funds by as much as £15 - £20bn. Furthermore, the associated increase in annual pension costs incurred by companies could reduce the profit before tax for the FTSE 100 by around £1bn a year.
Wesbroom said: “It will be even more important to look at the mortality assumptions that people use when they disclose their IAS17 results. I think the International Accounting Standards Board will come under increasing pressure to insist that [companies] disclose their mortality assumptions, not just to expose them, but to justify them in light of potential changes such as smoking reduction.”
Hewitt’s research also revealed that smokers have a much lower life expectancy than non-smokers. Research has shown that a 35 year old smoker only has a 25% chance of surviving to the age of 80, while a fellow non-smoker has a 60% chance of surviving to that age.
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