UK Pensions Regulator to Impose Longevity Assumptions

February 19, 2008 ( - The UK's Pensions Regulator has told pension scheme trustees they should use more realistic assumptions about how long their members are likely to live.

BBC News reports the regulator is concerned final-salary pension schemes are underestimating longevity. The regulator also wants schemes to assume the improvements in life expectancy will continue.

According to the UK’s The Telegraph, for some pension schemes, changes to life expectancy assumptions could result in a 5% increase in pension liabilities. Pension Regulator chief executive Tony Hobman said: “Scheme members living longer adds to the cost of pensions and it is right that schemes recognize this in their funding,” The Telegraph reported.

The regulator expects that recently published central projections from the Office for National Statistics (ONS) should be used as guidelines for all final-salary pension schemes, BBC News said. If trustees and employers fail to agree on a set of longevity assumptions then the regulator will be able to step in and impose them.

“What we are going to do is to challenge people to say why they are not going to assume that life expectancy is going to carry on improving,” David Norgrove, chairman of the Pensions Regulator, said in the BBC News report.

John Ralfe, an independent pensions consultant, warned that many companies are not even yet recognizing the current benchmark assumptions for longevity, let alone more prudent ones, and the change could add possibly 10% to the cost of their liabilities.

According to BBC News, actuarial firm Watson Wyatt also pointed out that mortality and longevity varies between different parts of the population. “Mortality really is scheme-specific and too prescriptive a trigger will not fit that very comfortably,” said James Wintle of Watson Wyatt.