Pensions Regulator gets real on life expectancy

by Gill Montia

Story link: Pensions Regulator gets real on life expectancy

Pension fund liabilities are about to increase because the Pensions Regulator will be instructing all UK providers to use realistic life expectancy forecasts.

A new mortality standard is to be announced next week in a consultation document that could affect over 99% of pension funds.

Its proposals could increase stated liabilities by billions of pounds. For companies currently adopting the most cautious standard, the rise could be between 6% and 8%, leaving around one-third of schemes facing rises in liability of between 15% and 20%.

The new standard assumes that men retiring at 65 today will live to at least 89, around two years longer than the projection used in over half of UK company schemes.

It also expects schemes to use projections that assume life expectancy will continue to improve.

The regulator has the power to investigate schemes that it deems to be under funded and to determine the amount and timing of payments to offset shortfalls.

In 2007, the average 65-year-old British male had 19.7 years of life left and by 2027 this is expected to have increased to 21.5 years.

There are currently 9.8 million people aged 65 and over in the UK, representing 16% of the population. The proportion of over 65s is expected to rise to 20% in 2021, and 24% in 2036.