Mercer Study Shows Pension Longevity Assumptions on the Rise

(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.”

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.