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UK roundup: Longevity changes 'could cut £310bn from liabilities'

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Pension funds should start to take seriously recent data on UK life expectancy, which suggests that longevity is not improving as strongly as previously thought, according to PricewaterhouseCoopers (PwC).

Analysis from the Continuous Mortality Investigation (CMI) has indicated that standardised mortality rates improved by 2.6% a year on average between 2000 and 2011, but since then “have been close to zero”.

Raj Mody, PwC’s global head of pensions, said: “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 [€367bn] 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.

“That then puts a fuller funding situation within reach for many pension funds, without relying on excessive cash contributions to repair deficits in the short term. For example, if assets grew by an extra 1% a year than otherwise assumed when working out deficits in the first place, that on average would cover pension liabilities without the need for company cash contributions.”

However, he emphasised that the effects would vary depending on each pension fund’s circumstances, and may not become clear for many years.

FTSE 100 pension schemes face tough summer

Trustee boards of one third of FTSE 100 company pension schemes will face a tough summer of negotiations with sponsors this year, consultancy firm JLT Employee Benefits has warned.

This is because they will likely require higher employer contributions to fill funding shortfalls following latest triennial valuations. Schemes likely to be in this group include BAE Systems, BT, GlaxoSmithKline, Lloyds Banking Group, Standard Life, and Tesco, the consultant said.

Company directors “will be stuck between a rock and a hard place”, JLT said, as they attempt to balance the interests of the scheme and the company. 

Uncertainty related to Brexit and the imminent UK general election was likely to have exacerbated the problem through volatility in financial markets.

Charles Cowling, director at JLT Employee Benefits, warned the period could lead to more scheme closures due to spiralling costs – Royal Mail is currently in talks over the future of its pension provision – and could also hurt shareholders. Seven FTSE 100 schemes were paying more in pension scheme contributions than in dividends, he said.

Brunel LGPS pool launches search for custodian and administrator

The £25bn local government pension scheme project for south-west pension funds – Brunel Pensions Partnership – is searching for a custodian and administrator as it builds its asset pooling offering.

The custodian part of the tender is for 10 separate contracts, one for each member of the Brunel Pensions Partnership. The administration contract will cover the entire Brunel project. However, the tender notice said all contracts would be awarded to one successful bidder.

Brunel is inviting bids until 5 June. The tender details are available here.

Monsanto offloads £100m of liabilities

Scottish Widows has backed a £100m buy-in transaction with the UK pension fund of agriculture firm Monsanto, part of the pharmaceuticals giant Pfizer.

In a statement announcing the deal, Scottish Widows said the pension scheme had retained exposure to deflation risk, meaning it would pick up any shortfall incurred by the insurer if the UK enters a deflationary environment. The scheme could offload this risk in the future subject to conditions being met, Scottish Widows said.

Emma Watkins, director of bulk annuities at Scottish Widows, said the Monsanto Pension Plan “has been innovative in its approach to inflation protection, leading the way for other schemes to secure different benefits with insurers than those that they are obligated to pay to members”.

Matt Wiberg, specialist bulk annuity adviser at Willis Towers Watson, who worked on the deal, said: “The features of this transaction demonstrate the flexibility of the bulk annuity market as it continues to evolve to meet pension funds’ needs.”

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