The pension deficits of Britain’s biggest companies are likely to shrink as benefit payments are recalculated to consider declining life expectancy.
Pension experts say a drop in how long people are likely to live has the potential to knock billions of pounds off the cash companies expect to pay out as pension benefits.
Official data shows the average life expectancy has stood still since 2015 after improving for decades.
The Office for National Statistics research shows men can expect to live until they are an average 83.6 years old and women to 85.9 years from the age of 65.
“After decades of continuing improvements in life expectancy resulting in ever increasing pension liabilities – this slowdown in longevity improvements has the potential to knock billions off pension liabilities,” said Charles Cowling, chief actuary at pension consultancy JLT Employment Benefits.
Pension black hole of £37 billion
“We estimate that 2018 could see pension liabilities reduce by over £40 billion because of the changing outlook for life expectancy, sending pension schemes soaring into surplus – at least as far as the numbers recorded in company accounts are concerned.
“Life expectancy in the UK has stopped improving for the first time since the ONS figures began in 1982. Companies are also going to be looking at making changes to their life expectancy assumptions, given that current indications also show that 2018 is going to be another relatively heavy year for mortality.”
A study by the firm reveals UK private companies have assets of £1.565 billion but expect to pay out £1.602 billion – leaving a deficit of £37 billion.
The figures break down further for FTSE 100 companies and FTSE 350 companies.
FTSE 100 companies have assets of £668 billion and liabilities of £670 billion, a difference of only £2 billion.
FTSE 350 companies have £756 billion set aside to pay pension benefits of £763 billion, leaving a £7 billion deficit.
“This has been a quiet month in markets with both the inflation outlook and long-term interest rates drifting slightly upwards,” said Cowling.
“At the same time equity markets have held up well, despite continuing political uncertainty in Europe and the US. All of this means that pension scheme deficit positions are broadly unchanged, showing a modest improvement over the last 12 months.