Schemes could see huge reductions in their liabilities on a funding basis if the recent slowdown in life expectancy improvements becomes a long-term trend, according to PwC.
The consultancy's latest monthly Skyval index shows while the aggregate deficit of the country's 5,800 defined benefit (DB) schemes stood at £530bn at the end of April, this could fall to £220bn under lower life expectancy projections based on data from the past six years.
While improvement in life expectancy was clearly a long-term trend in the noughties, this started to tail off from 2011 and each year since has seen higher than expected mortality rates, which in 2016 were around 11% higher than if the 2000-2011 trend had continued.
This had been seen as just a short-term blip but is now thought to indicate a longer-term trend, as suggested by the latest Continuous Mortality Investigation (CMI) projections model produced in February.
PwC's index, which looks at the funding measures used by trustees to determine sponsor cash contributions, calculated the £310bn fall in liabilities on the basis a 40-year-old male would now live to 84 rather than 90 under previous typical projections, and for a 40-year-old woman it would be 86 from 91. Meanwhile, the projected life expectancy for a 55-year-old male is 84 compared to the previous projection of 88, while for a woman of the same age it is now 86 rather than 90.
PwC's global head of pensions Raj Mody said for a given pension fund, the trend from the past six years is relevant and "isn't just a blip": "If schemes assumed this increasing trend would continue, but the more recent trend is flatter, why not extrapolate this [latest] trend rather than the [older] increasing trend?"
He added: "Any given pension fund will have to think about how the national data affects their situation specifically - that will depend on the composition of their membership relative to the UK population generally. However, £310bn could be shaved off pension deficits if the latest life expectancy trends are assumed to continue and allowances for previous long-term improvements are removed."
This would put many schemes on the path towards higher funding without having to rely on excessive cash contributions to repair deficits in the short term, he said.
The firm calculated that if assets grew by an extra 1% a year than currently assumed in deficit calculations, this would on average cover liabilities without the need for cash contributions.
Mody said: "If pension schemes were previously assuming that a 40-year old man lives to 90, but that could end up being 84, you would look at current deficits in a different light. Companies and pension trustees should rethink their approach for how best to cover some very uncertain scenarios which aren't going to become clearer for a few decades."
The analysis comes as a separate Mercer study found sponsors are increasingly updating their mortality assumptions at a more frequent rate to keep on top of changes in liabilities.
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.