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Exploring the dismal science of mortality assumptions.
Laura Cameron, CFO Europe Magazine
December 10, 2007
Considering life expectancy in the UK is increasing by two years every decade, or five hours a day, it's surprising that the average FTSE 100 company assumes that the life expectancy of recently retired employees will rise more slowly than suggested by official statistics. The UK's blue-chip companies reckon that life expectancy will rise by only 1.3 years in the next 20 years, according to consultancy Pension Capital Strategies (PCS).
Charles Cowling, managing director of PCS, says that some companies aren't diligently updating their mortality assumptions. After all, assuming shorter life expectancies minimizes pension deficits, which for the FTSE 100 as a whole reached £2 billion (€2.8 billion) at the end of the third quarter. But over the past year, pressure from shareholders prompted firms to disclose more details about mortality assumptions, which PCS collected for its recent study.
The research tends to confirm the correlation between socioeconomic class and life expectancy, so it is not surprising that pub operators aren't betting on retirees' longevity to the same degree as banks. But some other results are more difficult to explain. According to Tesco's mortality assumptions, the second lowest in PCS's study, the retailer expects its retirees to shuffle off 18 months earlier than their counterparts at rival J Sainsbury.