Pensions fall short on life expectancy

By Simon Challis

LONDON (Reuters) - Some of Britain's top companies have increased pension scheme life expectancy assumptions, adding billion of pounds to their liabilities, but remain way off regulatory guidelines, pension consultancy Mercer said.

Data from 30 companies in the FTSE350 showed they increased life expectancy assumptions by an average of six months in 2007, adding around 8 billion pounds to pension liabilities, said Mercer, a unit of Marsh & McLennan.

Twelve companies recognised significant improvements in life expectancy for an existing pensioner, and those in manufacturing posted the biggest increases. One company added nearly six years to male lifespans in its scheme, added Mercer, on Tuesday.

But the figures suggest mortality assumptions are still far lower than those recommended recently by the pensions watchdog which recognise a recent rapid increase in lifespans, said Mercer.

The Pensions Regulator, concerned many companies use unreasonably optimistic mortality assumptions, has proposed they adopt the most conservative projections -- the "long cohort" -- that assume the average 65-year-old male retiring today will survive until 90.

The average life expectancy assumed by companies in the Mercer analysis was less than 86.

"The latest data we have been able to obtain from published accounts suggest those companies making longevity disclosures are, on balance, still some way below (the Pensions Regulator's recommendations)," John Hawkins, a principal in Mercer's Financial Strategy Group, told Reuters.

Those that do not use long cohort assumptions will have to justify that decision to the regulator, which has said it will take no action if they can prove the life expectancy of their pension scheme members is less than suggested by long cohort figures.

Two companies last year cut life expectancy assumptions, after studies of their pensioners' mortality showed their calculations were too conservative, said Mercer.