BT defends longevity assumptions
UK - British Telecom has defended the assumptions it is making about the impact of longevity on the £35.9bn (€53.3bn) BT Pension Scheme.
The move, which follows criticism from commentators, came as the telecoms giant disclosed in its half-year report that its pension deficit had fallen by £600m to £2bn - mainly due to strong equity market performance.
Earlier this week, independent consultant John Ralfe had expected the report to contain a change in longevity assumptions. He thinks the figures BT uses are too low.
"BT's mortality assumptions are calculated by an independent actuary on the basis of national data and the specific experience of the BT Pension Scheme membership," a BT spokesman told IPE.
"The assumptions are up to date, make allowance for further improvements, are fully disclosed and are prudent."
He added that compared to one company, i.e. Royal Mail, there might be rather a large difference in assumptions but looking at the whole range of FTSE100 companies "we are right in the middle" of the scale of assumptions.
Similarly, Royal Mail commented: "Royal Mail's latest longevity assumptions are based on the large amount of data we have about members of the pension scheme and the trends which can be derived from that data."
Watson Wyatt, actuary for both the schemes, explained that differences in schemes and its membership also lead to different longevity assumptions but it did not want to comment further on their clients' accounts.
"BT's longevity assumptions are significantly weaker than Royal Mail," Ralfe had written in a note in the RBC Capital Markets Open Forum. "If BT used these tougher assumptions, its March 2006 IAS19 liabilities and deficit would increase by over £3bn to £41bn and £5.5bn respectively."
In the last year, Royal Mail had changed its assumption on life expectancy for 60-year-old men from 82 to 86 while BT had adjusted its from 83.3 to 83.8.