FTSE 350 firms' pensions liabilities rise by £8bn
Wednesday, 14 May 2008
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The pension schemes of Britain's 350 largest quoted companies saw their liabilities collectively rise by some £8bn last year, as they updated their expectations for members' life expectancies.
According to new research by the consultancy Mercer, pension schemes increased the age at which they expect their members to die by an average of six months, taking account of new actuarial tables which have shown marked increases in life expectancies over the past few years.
Nevertheless, after a difficult second half to 2007, which saw pension schemes fighting falling stock markets as well as rising longevity, Mercer said the funding position of the FTSE 350's final salary pension schemes improved during the first quarter of 2008, as corporate bond yields had risen. Collectively, the FTSE 350 schemes had a surplus of £14bn on an IAS 19 basis by the end of March, compared with a deficit of the same size at the end of last year.
However, John Hawkins, a principal in Mercer's financial strategy group, said the true picture may not be as upbeat as the statistics suggest. "On some measures, the yield increase is less significant, and the position is vulnerable to a re-rating of corporate bonds and a reduction in credit spreads as confidence and liquidity recovers," he said.
Mr Hawkins added that life expectancy is also likely to continue to improve over the coming years, further hurting pension scheme balance sheets. "Further improvements in life expectancies are still anticipated, although increases in liabilities are not likely to be restricted to this factor alone," he said.
Many companies have been slow to update their life expectancy assumptions over the past few years, in a bid to keep the pension liabilities on their balance sheets to a minimum. But the Pensions Regulator has been increasing pressure on firms to use more accurate assumptions.
