By pubishing guidance figures assuming indefinite longevity growth
in the population, the pensions watchdog has overstepped its remit,
according to KPMG.
Accountancy firm KPMG has revealed that only 2 per cent of companies
surveyed in its annual pensions accounting survey had incorporated the
pensions regulator's draft assumption of indefinite longevity growth
into their calculations.
The research, which was conducted among 270 clients as part of the
KPMG Pensions Accounting Survey 2008, estimated that if all the
companies incorporated the regulator's assumption into their accounts,
firms could be facing a further £40bn pensions shortfall nationwide.
Mike Smedley, partner at KPMG, said: "Taken at face value, the
regulator's guidance suggests that it believes life expectancy will
increase indefinitely. The fact that only 2 per cent of companies agree
with this view suggests that the Regulator has taken a step too far.
Many companies think that the regulator has overstepped its remit and
that it should not be an industry-setter on mortality assumptions."
However, the research did reveal a gradual increase in life
expectancy assumptions over the past three years, with average life
expectancy found to have risen to 86, up from 83 in 2004, 84 in 2005
and 85 in 2006.
Mr Smedley said: "2007 was a good year to bury bad news on pensions.
While performance of pension assets was not spectacular, the liquidity
crisis resulting from the credit crunch meant that AA-rated corporate
bond yields - which are used to discount liabilities-increased by some
70 basis points. This led many companies' underlying pension
liabilities to fall by more than 5 per cent. That meant improving life
expectancy allowances could be absorbed without significant pain to the
balance sheet."
He added that pension buyout was a realistic option for companies
who were facing uncertainty to offload pension scheme liabilities.
Andrew Winstone, press officer at the pensions regulator, said draft
assumptions should not be treated as formal assumptions. He said: "We
have always emphasised that our triggers should not be regarded as
targets, and that remains the case here, the guidance makes it clear
that assumptions will generally be scheme specific. The consultation
period has now ended, and we thank those who have responded. We are
considering all consultation responses and will publish our final
guidance and approach to looking at mortality assumptions alongside a
consultation report in due course.”
