3 May 2017

United Kingdom, London

  • Pension schemes reduce life expectancy by average of 3 weeks
  • 65 year old woman expected to live until 89.5 years, man to 87.5 years
  • Long-term trend still upwards for life expectancy in UK

Mercer’s latest accounting analysis shows that after years of increasing life expectancies in corporate accounts, the stalling of mortality improvements in recent years is now leading employers to revise downwards their estimates of employee lifespans, shaving £2.5 billion off FTSE 350 pension scheme liabilities.  In their 2016 year-end accounts, employers are typically assuming a 65-year-old woman will live to 89.5 years and a 65-year-old man to 87.5. These figures are around 3 weeks lower than when they reported 2015 year-end figures.

Mercer’s analysis looked at data from 94 UK pension schemes. The consultancy estimates that, in isolation, this reduction trimmed £3 million off every billion pounds of liabilities shown in the UK’s company accounts. According to Mercer’s Pension Risk Report, at 30 December 2016, the pension liabilities for FTSE 350 employers were £857 billion, so, in total, the adjustment has removed just over £2.5 billion of liabilities from pension scheme balance sheets. 

Life expectancies are based on estimates of mortality rates both now and in the future. Mortality rates describe the number of people in a particular population expected to die over a set period. If rates fall, then the life expectancy of the group is expected to be higher.  The opposite is also true. 

According to Glyn Bradley, Principal in Mercer’s Innovation, Policy and Research team “In the last few years mortality improvements have slowed down, leading to lower life expectancy assumptions. We are seeing a growing concern among employers about longevity increases of their pension scheme members. They are adopting the latest projection models whereas, in the past, they might only have looked at their model once every three years, when they negotiated funding requirements with their scheme trustees. While, in the short-term, life expectancy increases have slowed, medical research, application of past breakthroughs, innovative use of technology and potential for lifestyle improvements all mean that lifespans will continue to increase.”

Mercer’s report supports that view, showing that schemes are anticipating that, despite slow-downs in improvements over the short-term, employee life expectancy is improving over the longer term, meaning that pressures on defined benefit pension deficits are likely to continue to increase. The report shows that 60% percent of employers continue to assume an improvement of 1.25% p.a. in mortality over the long-term in their corporate accounts, with 28% using 1.5% p.a., and 11% assuming 1.75% improvements or higher. In 2015, the latter group was just 4%. 

The analysis highlights that while the issue of employee life expectancy is high on the corporate agenda, there remain different requirements between pension scheme trustees and companies. Trustees use ‘prudent’ mortality assumptions when calculating scheme assets, liabilities and deficits. Corporate accounts, on the other hand, use ‘best estimate’ assumptions. Only 27% of respondents (down from 29% in 2015) use the same assumptions for their corporate accounts as for their trustee funding agreements.  In their corporate accounts, 58% of employers strip out some or all prudence from their life expectancy pension assumptions while 15% of respondents don’t have a set policy or approach. 

Mr. Bradley concluded, “Overall, though, employers and trustees should continue to pay attention to improvements in mortality and use the latest data to ensure short-term improvements are not over-stated. Given the long-term direction of life expectancy, all companies and trustees should be investigating how they can remove the financial risk that it poses to their financial health, either through asset allocation, the use of bespoke longevity hedges or the more streamlined longevity solutions now available such a Mercer SmartDB.”

Notes to Editors
Mercer’s accounting survey covered 94 schemes reporting pension commitments as at, or within one week of, 31 December 2016. Most sponsors of UK defined benefit schemes use a version of the actuarial profession’s “CMI Mortality Projections Model”.  Since 2013 the core updates of these Models have generally revised down estimates of improvements in mortality both to date and also for the next decades ahead. Adopting the most recent Models sooner, means that employers can more quickly reflect the slowdown in life expectancy improvements in their accounts. 44% of those surveyed use the latest “CMI_2015” Model, released in October 2015. The next release of the model, CMI_2016, was published in March 2017 after these assumptions were set, and reinforces the apparent slowdown.

Table 1: Changes in Life Expectancy 2015 to 2016 for 65 year old men and women

Life expectancies in 2016

Male 65 now

Female 65 now

Male 65 in 20 years

Female 65 in 20 years

2015 Results





2016 Results





reduction (yrs)





reduction (months)





reduction (weeks)





reduction (days)





About Mercer
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.