WIREDGOV

Preliminary findings from the forthcoming 2011 Pensions Accounting Survey from KPMG in the UK reveal that the change to using CPI as the pension inflation measure and stabilising life expectancies have improved the position for UK private sector pension fund liabilities.

Commenting on the life expectancy data, Mike Smedley, Pensions Partner at KPMG in the UK, said: “Our sample’s assumptions that life expectancies are stabilising contrast with data out today showing that overall UK life expectancies are still increasing.  There are a number of reasons for this.  First, our sample is looking at assumed life expectancies for people who have already reached a particular age (usually 45 or 65) as opposed to from birth.  Second, companies have been ‘baking in’ increasing life expectancies for some time.  And thirdly, corporates make assumptions based on actuarial data relating to their particular scheme members which usually differs from the population as a whole.  As no one lives forever, it is likely that the life expectancies for the wider UK population will, in time, also stabilise.”

Despite historically low real yields, many companies have seen big improvements in their reported IFRS pension deficits over 2010/11.  Factors contributing to this include:

Commenting on the positive findings, Mike Smedley said: “This period of relative stability gives corporates a strong platform to implement risk reduction strategies.  Whilst deficits have fallen, rising asset and liability values mean that schemes look bigger relative to the corporate sponsor.  Strategies to remove liabilities or risk must be at the front of the corporate agenda.  The provision of CPI linked pension increases across many schemes also creates a demand for CPI linked government debt, time will tell whether the Debt Management Office reacts to this.”

Pensions pain swings from private to public sector

Meanwhile, the Hutton report into public sector pensions has recently recommended a range of changes to public sector schemes, including a move from final salary to career average benefits and an increase to retirement age.  This follows the move to CPI for public sector schemes in 2010 and the anticipated increases to employee contribution rates. 

Smedley added “Following a tough period for private sector scheme members and employers, the pendulum has now swung, and we expect public sector employees to now start feeling the pain.  The Chancellor can do much to maintain private sector confidence with a pensions friendly budget.”

For further information please contact:

Margot Cowhig, KPMG Corporate Communications

Tel:  0207 694 4246 Mobile: 07920 274856: margot.cowhig@kpmg.co.uk

KPMG Press Office: 0207 694 8773

Notes to editors.

KPMG Pensions Accounting Survey 2011 will be available in May 2011.  Our 2010 survey featured analysis of the financial and demographic assumptions of 302 companies.  The figures used in this release are based on an early cut of data in respect of 265 companies reporting as at 31 December 2010 under IFRS or equivalent.

Life expectancy assumptions for males from age 65 onwards (years) at 31 December (KPMG data samples)

About KPMG

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff.  The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.