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Increased longevity cost funds £13bn - Mercer

UK - Pension funds of the top 350 UK-listed companies have increased the life expectancy assumptions of their members by at least year but added a further £13bn of liabilities in the process.

A quarterly Pension Scheme Commentary study conducted by Mercer Human Resource Consulting suggests between 2005 and 2006 UK pension schemes of FTSE 350 companies increased the allowance they make for the life expectancy of members by an entire year.

That means, however, their total liabilities also increased by around 3% of £13bn when pension funds have been working to reduce their deficits.

Mercer also revealed a record £6bn was contributed to schemes in 2006 - up 8% on 2005 - to reduce the pensions funding shortfall.

Tim Keogh, worldwide partner at Mercer, said the additional contributions made are still less than half the value of the liability increase but pension funds are at least attempting to move closer to their true liabilities.

"Most companies are now disclosing their longevity assumptions. Our analysis shows that many have revisited these since last year, when the introduction of international accounting standards first put this data in the public domain. Differentiation by workforce type is increasingly evident, with financial and services sector workers typically assumed to live 1.5 years longer than those in manufacturing and industrial sectors," he added.

This latest data comes at the same time as evidence suggesting pension funds are beginning to pull back their funding shortfalls into surpluses and keeping them there.

Telecoms firm Cable & Wireless today announced its pension fund has moved from a £89m deficit at March 31 2006 into a £43m surplus at March 31 2007 under International Accounting Standard 19 (IAS19), while the fund had a surplus of £92m on an actuarial basis.

Keogh added FTSE 350 companies are now close to surplus in terms of their overall funding positions attached to IAS19 accounting measure but some schemes still have sizeable deficits.

This latest evidence from Mercer in part counters yesterday's claims from Lane Clark and Peacock suggesting pension funds are not doing enough to ensure their liabilities match the true life expectancy of their members.

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