Mercer Study Shows Pension Longevity Assumptions on the Rise

New survey data issued by the London-based unit of consultant Mercer shows that the costs of rising life expectancy added billions of pounds to the pension bills of the United Kingdom’s largest 100 companies in 2009.

(August 3, 2010) — A new report by Mercer shows pension plan liabilities of the United Kingdom’s largest 100 companies increased about 1.5% last year, driven by increased life expectancy of plan members.

The FTSE 100 companies, or the largest 100 publicly listed firms in the UK, increased assumptions of life expectancy used in calculating liabilities by an average of six months in 2009.

As a result of changes in accounting assumptions, median liabilities at FTSE 100 companies jumped about 20% last year, as pension scheme longevity assumptions increased for a fourth consecutive year. According to research by the London-based unit of consultant Mercer, the increase in liabilities was fueled by market conditions that pushed companies to alter their accounting assumptions. The firm estimated total liability of the FTSE 100 at £440 billion ($701.6 billion).

“Accounting assumptions really make a difference to the assessment of a company’s pension liabilities,” said Warren Singer, UK head of pension accounting at Mercer, in a news release. “Rising life expectancy continues to have serious financial implications for pension schemes.”

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The consultant’s annual pension accounting assumptions survey additionally found that on average, scheme members aged 45 are now expected to live nearly 2 years longer from retirement than a member currently aged 65.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(August 3, 2010) — Driven by spiraling pension costs and funding shortfalls, Mayor Michael Bloomberg has created New York City’s first chief investment officer.

Ranji H. Nagaswami, an Indian American with more than two decades of private sector experience, will assume the new role of adviser to the mayor’s trustees on the boards of five New York City pension funds with combined assets of about $104 billion. Nagaswami, who came to the US from India in 1984 to attend Yale University, most recently worked as CIO at AllianceBernstein, where she oversaw $100 billion in assets and management.

The decision to create a new post to aid in pension oversight in an arena overseen by City Comptroller John C. Liu reflects a desire by the administration to improve its approach to investments with the help of a “renowned and experienced professional,” Mark LaVorgna, a spokesman for Bloomberg, told the Wall Street Journal. The city’s appointment of a CIO reflects pressure to increase returns and reduce costs to taxpayers.

Nagaswami will additionally replace Bud Larson to become chairwoman of the New York City Employees’ Retirement System (NYCERS), the county’s largest municipal public employee retirement system.

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In a radio address on Friday, Bloomberg noted that the city’s pension contributions have grown from $1.1 billion when he took office to $7.6 billion this fiscal year.

According to a news release from the mayor’s office, Nagaswami’s duties will include conducting research on all relevant investment issues that impact the portfolios, providing the mayor’s pension board trustees with timely investment reviews, reports and presentations, and making recommendations on asset allocation and investment strategy while assisting in negotiating the terms and conditions of investment contracts with managers and banks.

The five city pension funds consist of the New York City Employees’ Retirement System; the Teachers’ Retirement System of the City of New York; the New York City Police Pension Fund; New York City Fire Department Pension Fund; and the New York City Board of Education Retirement System.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742