Increased life expectancy risks adding £10 billion to pensions black hole

02 February 2004
Improvements in life expectancy may have added an additional £10 billion to the top 100 UK firms' pension fund liabilities over the past three years, a new study warns.

Research by Aon Consulting warns revealed that leading firms may be forced to fork out an extra £10 billion over the next 40 years, as moves to tackle age discrimination, coupled with increasing longevity, have a significant impact on companies.

For every year of increased life expectancy, pension costs will rise by 3.5 per cent, or £100 million each for firms in the FTSE-100, the pensions consultancy claims.

Paul McGlone of Aon Consulting said: "We calculate that if the life expectancy figures which FTSE 100 companies use to calculate their pension provision are underestimated by just one year, this is likely to understate liabilities on balance sheets by £10 billion. Further underestimation of the effects of mortality improvements would lead to even bigger shortfalls."

Figures from the government Actuaries Department show a ten per cent increase in the life expectancy of a man aged 65 - adding another two years onto the average male life expectancy over the next 45 years.

Aon also points out that people living longer and being generally healthier means that they will also need to make a greater commitment to saving and spend more time working.

Mr McGlone said: "Low levels of pension investment in youth and middle age, coupled with three successive years of falling equities, means that many people approaching retirement age will be disappointed with their impending level of income. The solution for the majority of the UK population will be to work beyond the common retirement age of 65."