Life expectancy assumptions have increased by six months, in turn increasing scheme liabilities by around 1.5 per cent, says Mercer.

2009 saw FTSE 100 company pension schemes increase their longevity assumptions for their pensioners for the fourth consecutive year, according to new survey data from the financial consultant.

UK longevity assumptions for current pensioners have been increased by around five months, and by seven months for future retirees. An average scheme member aged 45 is now expected to live almost two years longer from retirement than a member currently aged 65.

“Accounting assumptions really make a difference to the assessment of a company’s pension liabilities, explained Warren Singer, UK head of pension accounting at Mercer.

“Rising life expectancy continues to have serious financial implications for pension schemes. Overall, changes in accounting assumptions have increased the median FTSE 100 company’s UK pension liabilities by around 20 per cent. The wide range of views taken by companies on accounting assumptions, in the face of economic uncertainty, makes it very difficult for users of accounts to compare pension accounting disclosures.

“There is no single correct answer for these assumptions. Therefore, the IASB is proposing to address the diversity of views by requiring additional disclosure information, such as the sensitivities of liabilities to assumption changes,” he said.

The largest variation occurs in the accounting assumption for the expected rate of return on equities, Mercer said, and so it is worth noting the IASB proposal to replace this assumption with the yield on high quality corporate bonds from 2013. This, they said, would increase the financing cost element of profit or loss for the vast majority of FTSE 100 companies.

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