Up to £45bn could be knocked off the combined pension deficits of FTSE 350 companies, due to lower life expectancy and changes in the conversion rates of employees' retirement benefits, according to Willis Towers Watson.

In addition, the new calculations would reduce the 2017 deficit by £7.8bn to £119.6bn, by rolling forward the companies' last published accounts to reflect how the market has moved in the past year.

The new figures are achieved by using Willis Tower Watson’s CMI_16 model, reducing life expectancy by six months for somebody retiring in 20 years, cutting deficits by up to £25bn.

Furthermore, companies who calculate a single liability number, which can then be compared with the market value of the pension plan’s assets, could knock off another £20bn off the combined FTSE 350 pension deficits.

Willis Towers Watson director, Nicola Van Dyk, said: “Buoyant equity markets provided a fair wind for pension scheme assets in 2017. Overall, our asset liability suite tracking software projects that pension assets rose by about 5.5 per cent - a couple of percentage points faster than liabilities would have done even without changes to how these are calculated.

“At the same time, death rates have been higher than predicted, and this has allowed companies to budget on the basis that pension scheme members won’t live quite as long as they used to expect.

“Unlike reductions in life expectancy, higher discount rates do not shrink the cash payments that companies anticipate their schemes making to pensioners in future – but they do mean that each £1 of future pension can be given a lower value today.

“The scale of the pension promises that large employers have entered into means that small technical changes can make a meaningful difference to the pension numbers on their balance sheets.”

Without any changes to life expectancies or discount rates, deficits would have been relatively flat over 2017.

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