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Fall in numbers of deaths likely to impact on pension funds, expert warns


A further improvement in the mortality rate in England and Wales over the last year is likely to have a knock-on effect on pension scheme funding, an expert has warned.

Analysing the latest longevity figures from the Office of National Statistics (ONS), the Actuarial Profession said that a 4% improvement in the mortality rate in England and Wales resulted in 20,000 fewer deaths last year than would have otherwise been expected.

However Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the findings were further bad news for defined benefit schemes which were already being hit hard with poor investment returns as a result of falling stock market values.

"Just when trustees thought that they were getting to grips with mortality risks by adopting more realistic longevity assumptions, it seems that those assumptions may not have been realistic enough. We are all living longer, and the increase in longevity still seems to keep outstripping actuarial expectations," he said.

Defined benefit pension schemes promise a set level of pension once an employee reaches retirement age no matter what happens to the stock market or the value of the pension investment. According to recent report by industry body the National Association of Pension Funds (NAPF), one quarter of such schemes are now closed to future contributions as employers struggle to cope with increasing life expectancy and poor investment results.

Gordon Sharp of the Actuarial Profession said that mortality rates over the last 20 years had seen "unprecedented improvements". Actuaries have a statutory role in the supervision of pension funds.

"The total number of deaths in England and Wales in 2011 was 484,000 - a highly significant figure as it makes the third year in a row where the number has been below 500,000," he said.

"Mortality rates can vary significantly on a year to year basis and it is important not to read too much into one year's figures. However, as policy makers continue to look for solutions to the challenges faced by an aging population, it has never been more important to ensure that mortality figures and trends are properly analysed," he said.

He added that the figures were "initial estimates", but showed that the improvement for mortality rates in 2011 was "well above average". The ONS usually publishes final data for each calendar year around the middle of the following year, with data for Scotland published separately by the General Register Office for Scotland.

The Pensions Act raised the retirement age for women to match that of men in 2018 before it rises to 66 for both sexes in October 2020. Pensions Minister Steve Webb has suggested that further increases may need to take effect as early as 2026 - ten years earlier than proposed by the previous Government.

The age at which men could receive the state pension was set at 65 in 1926 when there were nine people of working age for every pensioner, according to Government figures. There are now only three people of working age for every pensioner and it is estimated that this will fall to nearer two by the end of the century.

Linking the retirement age under public sector pension schemes to the state pension age is part of a package of measures to reform the system that the Government is currently seeking to agree with trade unions. The changes are due to take effect from 2015.

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