UK - Pension funds ought to pay more attention to the longevity of their members if they want to ensure schemes can match their future liabilities, according to Lane Clark & Peacock.

Martin Slack, senior partner at Lane Clark & Peacock, said while pension funds have in recent years focused mainly on getting funds back into surplus and keeping them there to meet accounting rules, pension funds are still not doing enough to check the liabilities they seek to meet are in fact a true reflection of the payouts they will make to members during their retirement.

More specifically, he suggests pension schemes are the assumed ages at which people may die are "optimistic" - suggesting they will die sooner than they are likely to - and the actual liabilities could potentially be much higher than they expect because insufficient focus is given in calculations to the likely age people will live to.

"Accountants have shown us how to assess the liabilities and this can be impacted only by corporate bond movements. But one note of caution is the allowance for pensions mortality," said Slack.

"Our expectation is companies are probably going to be a little slow in getting up to speed with what is going on [with pensions mortality] so some of these liability numbers are potentially optimistic. It is an area of great uncertainty but the historic trend has been to take a very optimistic approach.
"[Pension funds] have to decide how prudent they want to be, whether to go for best prospect or the true liability. It is a very difficult issue for company directors, and trustees of pension schemes trying to get the money in, to know what sort of longevity they can expect. Pension funds are assessing their [mortality] liabilities but whether they take the cautious or optimistic approach is variable. A lot of schemes know the problem of pensioner mortality has always been there but they didn't want to believe it," he added.

His comments follow a recent rise in the number of UK pension funds returning to surplus under international accounting rules (IAS) and indications suggesting at least one-third of FTSE 100 company pension funds are back in surplus.

The BT pension fund last week stated the fund had moved back into a £1bn surplus but officials noted maintaining that surplus was still a volatile process because surpluses are measured according to bond yields for accounting purposes when much of their assets could be subject to the ravages of the equities market.

Slack acknowledges a pension fund's deficit or surplus is the value of assets and an assessed value for potential liabilities. But he said LC&P's own study of pension fund liabilities over the coming months is likely to try and gage whether pension funds are looking regularly enough at the actual age their members are likely to live to.