FTSE 350 defined benefit (DB) schemes are "bunching" around an average discount rate of 2.8% due to higher yields and a tougher stance from auditors, Hymans Robertson research finds.
While discount rates did vary between 2.7% and 3.1%, nearly nine in 10 companies used a discount rate within 10 basis points of the 2.8% average, compared to 66% in this range of the average last year. Around 45% of schemes using 2.8% exactly.
The consultancy's IAS19 Assumptions Report, published today (11 July), analysed the key assumptions adopted by FTSE 350 DB schemes in their disclosures as at 31 December last year, and found high-profile failures and regulatory scrutiny meant auditors are now "assessing and challenging pension assumptions more than ever before".
Together, the schemes have around £700bn of liabilities, and their sponsors have a combined market capitalisation of £2.3trn.
It comes as companies grapple with changes to IAS 19 rules that will require them to remeasure their pension expense partway through the year after major scheme events.
Head of corporate consulting Alistair Russell-Smith said the way scheme liabilities are measured is "critical for assessing the financial wellbeing of UK plc".
"This year, companies must also be mindful of the changes to IAS 19 that came into force in January 2019," he said. "If there is a major scheme event - such as a closure to future accrual, member transfer exercise, or partial buyout - they will have to remeasure their pension expense partway through the year.
"This could lead to significant changes in the reported pension expense if market conditions are volatile."
Schemes have also undertaken significant changes in their assumptions for GMP equalisation, inflation, and longevity, which have had an impact on liability calculations.
Experience with GMP equalisation varied widely, with companies reporting the costs as amounting to between 0% and 2.7% of liabilities, with an average sum of 0.5% set aside and 73% of schemes expecting the cost to be less than 1%.
Schemes have also reduced their expectations of life expectancy for both non-pensioners and pensioners by an average of 0.2 years each. However, with a spread of around six years for the former and five years for the latter, there is much variation, and each additional year can add up to 4% to pension liabilities.
Russell-Smith also warned schemes to not simply adopt the data from standard population tables.
"Our Club Vita analysis shows different patterns of longevity improvements amongst different socio-economic groups," he said. "Using the standard tables unadjusted does therefore risk understating life expectancy."
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