For every extra year we live, the UK private sector pensions have to find an extra Â£15 billion, or so says a report from KPMG.
In fact, the report said that “UK private sector companies have added around Â£30 billion to the level of pension liabilities shown in their accounts over just two years due to increases in life expectancy for their pension scheme members. This compares with the current total UK private sector pension liability of around Â£500 billion.”
Alastair McLeish, head of KPMGâ€™s Pensions practice explains: #147;When increasing life expectancy and falling market returns started putting a strain on companiesâ€™ finances, many closed their defined benefit schemes. But this is not always the best solution. Defined benefit schemes, whether they are based on final salary or career-average earnings, are highly valued by employees as part of an overall benefit package.
#147;Companies are increasingly looking at new ways to approach defined benefit pensions risks. Some have introduced ways of sharing the risk of longer lifetimes with members, for example by setting employee contributions or the level of future benefits to change in line with changes in life expectancy. Other employers are considering hedging their pension liabilities using emerging life expectancy derivative products. Whatever strategy is adopted, there is always going to be a need to keep up to date with current thinking in this area and to ensure that the approach to pensions continues to fit with the overall business needs.#148;
© Investment & Business News 2013