A more global, consistent approach to mortality assumptions will help global employers avoid defined benefit (DB) liability surprises on their balance sheet, research shows.
LCP said FTSE 100 companies with employees in different countries were potentially underestimating pensions liabilities, and thus were failing to show the true effects on their balance sheet.
The consultancy found that, between France and Germany, Europe’s largest economies, mortality assumptions among the population differed by as much as five years.
France, along side Australia, currently has life expectancy pegged at just over 88 years, almost two years more than the UK and Spain, and more than two years than Belgium, the Netherlands and Switzerland.
“Is it right that the French working for a multinational company should be expected to live five years longer than their neighbours in Germany?” the consultancy asked.
It calculated that, if companies used mortality calculations more akin to France, for example, FTSE 100 companies with employees in Germany, the US and Japan would see liabilities 10% higher than currently stated.
“This could equate to an additional tens of billions on the balance sheets of the FTSE Global 100 companies,” LCP said.
Calling for companies to take a global perspective on mortality assumptions, LCP conceded revisions to accounting standard IAS 19 were moving in that direction.
Phil Cuddeford, a partner at LCP, said the results should be eyebrow-raising for finance directors in global FTSE companies.
“Companies need to take a global perspective and seek to standardise their assumptions,” he said. “Otherwise, they may find that balance sheet liabilities have become unsustainable.
“Whilst the variance in local approaches makes this a challenge, the explicit IAS 19 requirement to disclose material assumptions such as this is helping to focus minds on the issue.”
The research also provided insight into public views across the world on who was to blame for a poor retirement.
Across Continental Europe, 47% lay blame at the feet of the government, with only 7% blaming their employer and 42% taking personal responsbility.
Those blaming their employer rose to 14% in the US, where half took personal responsibility, while 27% blamed the government.
However, in the UK, those taking personal reasonability rose to 75%.
Only a fraction (1%) blamed their employer for a poor retirement, and a fifth the government.
LCP partner Alex Waite said: “These results highlight how important employee perceptions are. The main action for companies is to ensure they manage these perceptions.”