The cost of longevity risk for defined benefit (DB) schemes has increased by 50% in the past 12 years due to falling long-term interest rates.
Analysis by Hymans Robertson reveals how low real gilt yields of close to -1.5% per annum had significantly magnified the impact of longevity risk.
This has been worsened by the UK's decision to leave the EU, which has increased the risk of yields staying low for longer.
Hymans Robertson chief investment officer Andy Green said: "Many schemes don't realise interest rates and longevity risk are highly correlated. When interest rates were much higher, if people lived one year longer than expected, this increased the cost of providing their pension by around 3%
"With real yields on index-linked gilts now below -1%, more money needs to be held by DB pension schemes to pay a year's pension in 25 years' time than what is needed to pay next year's pension."
So a one-year change in life expectancy is now more likely to add 4.5% to the cost of paying a pension for an individual's lifetime, which is a 50% increase in longevity risk.
This in combination with the fact that DB liabilities have grown significantly, resulted in a 125% increase in longevity risk over the 12-year period.
Defined benefit (DB) pension schemes are already reeling after record low yields pushed DB liabilities to an all-time high of £2.3trn following Brexit.
The consultant predicted the situation could worsen over the coming months if the Bank of England lowered interest rates even further.
Hymans Robertson head of risk transfer solutions James Mullins warned the higher cost of longevity risk comes as most schemes have reduced their exposure to investment risk.
As longevity risk has never been higher, he believes longevity risk management will move higher up the agenda.
"Schemes should be seriously considering reducing their exposure to members living longer," he said. "Longevity risk has leapt up for DB pension schemes but the cost of insuring against this risk has remained nicely competitive."
Longevity solutions such as buy-ins and longevity swaps will be more relevant to risk management plans than ever before, he added.
Aviva Life & Pensions has concluded an £875m buy-in with its own staff pension scheme, following on from a similar transaction last year.
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
Just Group has completed a £74m pensioner buy-in with the UK pension scheme of a US-listed engineering business.
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.