UK - Life expectancy can vary significantly, not only by the size of the pension fund analysed but also by industry sector, suggests new research by Pension Capital Strategies (PCS) and Continuous Mortality Investigation (CMI). (Update with quotes from Charles Crowling)
In an overview of how mortality and life expectancy varies across different industries, PCS - a division of the insurer Jardine Lloyd Thompson - found "huge" variations from company to company.
The study contrasts major UK property companies like British Land and Land Securities, which assume the highest life expectancies of nearly 90 years for men, with UK supermarket retailer Tesco and restaurant chain Whitbread, with life expectancies of just over 80.
The study combined the mortality assumptions disclosed in the accounts of 76 FTSE100 companies with findings of a study by of Continuous Mortality Investigation (CMI), a project organised by the UK Actuarial Profession, which collects mortality data.
According to Charles Crowling, managing director at PCS, the life expectancy variations "do not always seem justified by their industry sectors".
"The point is both that there is far more variation in the individual company results than you would expect by simple industry variation. Also there are many individual results which do not seem consistent with their industry - witness the difference between the results for Tesco and Next," he told IPE.
Crowling suggests companies are not anticipating the rate at which life expectancy is improving when assessing their pension liabilities.
"We estimate that, on average, companies are anticipating that life expectancy will increase by just 1.3 years in the next 20 years," he said, arguing if current trends continue, "companies may well be in for further pension shock."
Des Hamilton, technical director at the Pensions Advisory Services (TPAS), a government body set up to offer pensions advice, agrees, saying some final-salary schemes are "optimistic" when it comes to life expectancy.
Earlier this week, Hamilton commented that occupational pension schemes have been wrong-footed by rising life expectancies.
Costs have risen substantially as life expectancies have increased, though schemes were set up with definite mortality rates and costs in mind, argues TPAS.
If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 20 7261 4622 or email carolyn.bandel@ipe.com
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