Longer lifespans strain company pension schemes: Mercer

British employers' pension liabilities increasing by 6 per cent
By Myles Neligan
|hrreporter.com|Last Updated: 10/03/2011

LONDON (Reuters) — Britain's biggest companies may have to pay more into their staff pension schemes as their employees live longer and as low interest rates erode investment returns, according to Mercer.

Britain's 100 biggest listed companies raised the assumed life expectancy of pension scheme members by four months on average in 2010, equivalent to a one per cent increase in scheme liabilities, according to a Mercer survey.

FTSE 100 employers have now raised staff longevity estimates for five years in a row, adding 2.5 years to their employees' expected lifespan and increasing their pension liabilities by six per cent, Mercer said.

A trend for British people to live longer, driven by medical advances and healthier lifestyles, has raised pension costs as providers are forced to make payments to scheme members for longer than originally budgeted for.

Life insurers such as Legal & General and Aviva have been forced to take tens of millions of pounds in charges to cover the additional expense.

Improved life expectancy added five billion pounds to British corporate pension obligations last year, according to a survey by Aon Hewitt.

Mercer said last year's rise in life expectancy came as companies cut their expected rate of investment return by 0.2 per cent because of low bond yields, putting them under pressure to make up the difference through higher contributions.

FTSE 100 companies on average expect 65-year-old male members of their retirement schemes to live until they are over 87, Mercer said.

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