View more on these topics

Pru says risk exposure over DB plans stands at 762bn

James Phillipps

Shareholders in companies with defined-benefit pension schemes face massive risk exposure from increased longevity, according to research from Prudential.

Pru says the exposure is 762bn, far outstripping the longevity risk of 30bn for shareholders in UK-listed insurers Head of mortality risk Ste-phen Richards is concerned that liability calculations for non-insurance companies are less tightly regulated, with little disclosure of longevity assumptions. The problem is exacerbated by the fact that several FTSE 100 companies have pension schemes several times bigger than their market caps. In January, British Airways’ DB scheme liabilities were equivalent to 899 per cent of its market cap. For ICI, the figure is 352 per cent, for BAE Systems, 242 per cent and for BT 224 per cent.

Richards stresses that any miscalculations in these companies’ longevity risk could lead to economic meltdown. At the other end of the scale, Vodafone and Liberty International’s schemes comprise just 1 per cent and 2 per cent of the companies’ respective market caps.

The FRS17 accounting standard, which is meant to ensure realistic reporting of companies’ balance sheets, does not factor in longevity risk. Richards says Institute of Actuary members are pushing companies to disclose this information in their report and accounts, which is a requirement for insurers.

Small and medium-sized companies are also over-exp-osed to longevity risk because schemes with 50 or less members self-insuring need to provide significant capital to provide any guarantees because such a small employee base can often throw up anomalies in actuarial calculations.

Recommended

M-Day brings a new world for mortgages

Sally Laker,Managing director,Mortgage Intelligence
The FSA has decided that brokers or networks who do not initially get auth orised by October 31 can trade as “interim-authorised” while they appeal against the FSA’s decision.

Three-week warning for pensions

Six months before retirement age, I received a comprehensive circular in FSA format from several insurance companies. These listed the options, gave no figures but told me how to obtain them. Four months before retirement age, I received a letter from the DWP Pension Service giving figures for my state pension. These bore no relationship […]

Consumer will benefit from regulation- Moneynet

FSA regulation of the mortgage market will bring greater transparency for consumers says data comparison service Moneynet. Chief executive Richard Brown said the new rulings should clarify many areas which were previously slanted in the lender’ and brokers’ favour.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com