26/1/2009
By Sophie Baker
Life expectancy assumptions for funding valuations in UK pension schemes have been increased by eleven months, according to Mercer's valuation survey.
In a reaction to regulatory pressure, says the financial consultant, UK pension schemes have increased the median life span assumed for active and deferred members to 89 years and one month, from valuations a year ago of 88 years and two months.
Mercer's survey questioned 196 schemes with around December 2007 and March/April 2008, and said that it should be noted that many of these valuations had not been completed and in these cases the survey was based on the scheme actuary's expectation of the final outcome.
Harry Sime, principal and leader of Mercer's valuation and funding group, said: "Trustees continue to fund their plans assuming greater life expectancy for their members. The Pensions Regulator's proposals on the use of an additional mortality trigger have had an impact as has the influence of analysis based on membership data."
Long cohort projection and the introduction of underpins to the rates of improvement are the causes for longer assumed life expectancy for active and deferred members, as given by Mercer, with expectations for use of these up to 27 per cent and 48 per cent respectively.
"The trend towards higher life expectancy assumptions is expected to continue with this being achieved by greater use of underpins and more adoption of the long cohort projection basis. A key objective for trustees is to be able to justify the assumptions they have used; noting that their approach should be both evidence-based and prudent," concluded Sime.
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