There are not many people who would consider it good news that the growth in our average life expectancy is slowing, but the managers of some pension funds may be an exception! The slowdown could mean that “defined benefit” pension deficits could fall by half – a drop of £310 billion from what was previously expected, according to a report by analysts PwC.
“New figures released today from PwC’s Skyval Index show the deficit of defined benefit (DB) pension funds stood at £530bn at the end of April 2017, a £30bn increase since last month…. However, latest life expectancy analysis – from the Continuous Mortality Investigation (CMI) – shows that we are no longer seeing the same rates of improvement in life expectancy experienced at the start of the 21st century, and which underpin many pension scheme deficit forecasts. If the more recent trend continues, £310bn could be wiped off the aggregate £530bn pension deficit, leaving £220bn… Furthermore, pension fund assets would need to grow by an extra 1% a year more than currently assumed in deficit calculations, for the next 20 years, to cover the remaining £220bn deficit without needing company cash contributions.”