MetLife Assurance research: Longevity risk important to defined benefit pension schemes

Employees living longer could have a detrimental effect on pension scheme liabilities, according to new research by MetLife Assurance.

Longevity risk was selected as ‘important’ by 38% of respondents to the UK Pension Risk Behaviour Index, up from 28% in 2010.

According to trustees, longevity risk was the fourth most important risk in 2011 and its importance selection rate increased from 24% in 2010 to 28% this year.

Among sponsors, for whom longevity risk was the fifth most important risk factor this year, the importance selection rate increased from 31% to 38% year on year.

Dan DeKeizer, chief executive officer at MetLife Assurance, said: “While improvements in life expectancy are good for individuals, longevity risk is a key driver of the pressure that defined benefit (DB) schemes face and its financial impact on DB schemes should not be underestimated.

“The risk is that a broad and sustained improvement in longevity may occur and significantly lengthen scheme members’ life spans.

“While the resultant increases in pension payments may not emerge for many years, from a valuation and accounting standpoint there will be an immediate increase in the value of the scheme’s liability.

“Where the scheme sponsor absorbs the longevity risk, this may result in higher levels of contribution to the scheme.”

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