When bad news on pensions is cheering

Defined-benefit pension schemes won't have to be paying out for quite as long as previously thought. David Prosser explains.

There's both good and bad news for employers struggling to fund expensive defined-benefit (DB) pension schemes. On the positive side, there is mounting evidence that many schemes have over-estimated how long they will have to pay out pensions for, which means they may be in a much stronger long-term financial position than is currently thought. Less happily, pension scheme deficits continue to mount up and many employers may face a large bill in the months ahead.

The happier tidings are contained in new analysis of life expectancy rates from PwC, an accounting firm. During the first decade of the 21st century, life expectancies rose at an unusually rapid rate; as a result, the typical DB scheme now calculates its finances on the basis that it will have to pay out a guaranteed pension to 40-year-old members today until they're 90 and 91 for men and women respectively. However, in the past five years, life expectancy improvement rates have slowed to a more typical historical trend level. This might suggest 84 and 86 would be a more realistic assumption, which would wipe a collective £310bn off the cost of financing DB schemes.

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David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.