Two years ago only 43% of schemes were using the ‘medium cohort’, but 98% of schemes are now using it, according to Hewitt’s analysis of valuations submitted to the Pensions Regulator.
The medium cohort means that a 40-year-old male is expected to live until over the age of 88 and a 65-year-old is expected to live to age 87, while a scheme with liabilities of £100m and assets of £96m would see its deficit rise to £8m.
Lynda Whitney, pension consultant at Hewitt Associates, said while the rise in liabilities was alarming, it was reassuring to see schemes adopting a more realistic approach to longevity.
“I expect the trend of changing mortality assumptions to continue,” she added. “Schemes with valuation dates in 2008 are discussing long cohort, underpins or both.”
Hewitt’s analysis also found the average discount rate assumed by trustees was found to be 1% above gilts.
John Belgrove, investment consultant at Hewitt Associates, added: “Over 70% of schemes use a discount rate which takes into account less than half of the expected investment outperformance. Trustees are quite rightly being prudent by adopting a lower funding discount rate than the rate of return they expect to get from their investment policy in the long term.
Hewitt’s analysis was based on 186 schemes with valuation dates between September 2005 and September 2007 that have now been submitted to the regulator. Schemes varied in size from small employers to FTSE 100 companies.
DR
