FTSE 100 firms increase life expectancy assumptions

FTSE 100 companies have increased the life expectancy assumptions used in valuing their pension scheme liabilities for the third consecutive year.

Mercer’s UK IAS19 Assumptions Survey showed that over 2008, the average life expectancy assumption for employees who have already retired increased by around seven months. This is approximately equivalent to a 2% increase in liabilities and mirrors the increases in 2007.

However, the increases were mainly among companies with the lowest life expectancy assumptions, and increased their assumptions to match those of their peers. This is illustrated by the fact that the 25th percentile life expectancy increased by more than nine months, while the median increased by less than three months.

Peter Bowers, head of Mercer’s UK accounting group, said: “Companies which have lagged behind others in updating their assumptions are recognising that, without objective evidence, it is extremely difficult to justify being markedly out of line with typical market practice. This is to be welcomed.”