UK - Scheme costs could soar by up to 30% because outdated mortality tables mean liabilities are massively underestimated.
The Association of Consulting Actuaries is warning members that existing mortality tables should not be used to calculate liabilities after new research was discussed at a closed meeting.
Sources at the meeting said the ACA had seen “work in progress” data from the Continuous Mortality Investigation Bureau, which showed that current estimates for longevity are wrong – in some cases by 30%.
But actuaries at the meeting have expressed concern that the ACA was unwilling to suggest alternative life expectancy tables that could be used until the new figures are released.
Instead, senior figures at the ACA are leaving the decision to actuaries.
One actuary said: “We have been told that the most up-to-date tables are not right and don’t adequately reflect longevity – the improvements in life expectancy have been understated.
“This information has left us in an awkward position because the new tables aren’t prepared yet.”
The ACA also said that actuaries should consider advising their clients that pension costs are understated.
PricewaterhouseCoopers partner Peter Tompkins admitted that the proposed rates of improvements in mortality figures have come as a shock.
Although the latest set of figures from the CMI are not yet available, he agreed that they could, on average, add an extra 10% weighting on top of current liability figures.
Tompkins said: “In the last five to 10 years we have seen an increase in the speed of life expectancy rising. All of the optimistic expectations have proved to be less than reality.”
He added that because of the triennial nature of scheme valuations, the effect of longevity is recorded in large steps and is, therefore, more noticeable.
*The ACA has started compiling its own tables for longevity based on actuarial data collected from schemes with more than 500 members.
But the meeting was told that this information will not be available until 2007, at the earliest.
Actuaries’ chief concerns
- Costs of providing pensions is likely to rise significantly. - Some actuaries estimate as much as 30%.- Even the most paternal companies are likely to rethink their pensions provision. In turn, more occupational scheme closures and wind-ups.- Insurers may reduce their exposure to the buyout market even more.- The government will find it difficult to replace the MFR with a lessonerous standard.- Costs of purchasing annuities are likely to rise even further.
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