UK - Both life expectancy assumptions and discount rates in actuarial valuations of scheme liabilities "appear to be chosen arbitrarily" rather than based on particular scheme circumstances, PricewaterhouseCoopers (PwC) says in a new report.
"There is still too much unexplained variability in the assumptions being used, which means a swing of as much as plus or minus 20% in the calculated liabilities without apparent justification," said PwC partner Marc Hommel.
In a study of 90 UK defined benefit (DB) schemes with assets in excess of £200bn (€303bn) PwC found that trustees were modernising assumptions and raising life expectancy predictions by one year on average from the assumptions taken into account in 2005.
But Hommel pointed out that: "There remain many pension schemes that have not factored increased life expectancy into the calculations of their liabilities, and thus the size of deficits is probably being understated."
PwC put the current liabilities across all of the UK's private DB pension schemes at £600bn. It noted that one year added to longevity assumptions added about £40bn to total calculated liabilities.
Of the 90 participants, 24% had a fully funded scheme or a surplus and 76% had a deficit.
The study also found that in 28% of respondents the same individual actuary acted for both the pension scheme and the sponsoring company. Of those with separate actuaries almost half used actuaries from the same firm rather than from separate firms.