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20bn cost of living longer

Increasing life expectancy cost the UK an additional 20bn in pension liabilities in 2005, according to research by KPMG.

It shows a wide disparity between life expectancy assumptions by pension funds in the financial services sector, with a range of over five years for predicted life expectancy past age 65 for present retirees. In other sectors there was a range of around nine years.

Forty-one of the 207 companies surveyed are in the financial services sector.

Their average assumed life expectancy for current and future pensioners is one year higher than companies in other sectors.

This equates to nearly 5bn extra in pension liability on top of a collective liability of around 125bn for all quoted financial services companies in the UK.

KPMG is calling for more research into the life expectancy of pension scheme members.

Head of pensions practice Alastair McLeish adds that although more companies are disclosing their mortality assumptions now they are reporting under EU-endorsed international financial reporting standards, some are still using standard assumptions that may not best reflect the real picture.

McLeish says: “More and better research is needed into the life expectancy of pension scheme members.

“It is also important that the life expectancy assumptions made by companies are clearly communicated, so investors and analysts can properly understand the basis on which a pension liability has been calculated.

“Otherwise, there is a danger that pension liabilities are simply a numbers’ game determined by an almost arbitrary set of assumptions.”

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