Pension liabilities in UK company accounts could be overestimated by up to £60bn

Pension liabilities in UK company accounts could be overestimated by up to £60bn

UK companies could be overestimating their pension liabilities by up to £60bn in their company accounts due to the coronavirus pandemic, according to research from XPS.

COVID-19 has had an impact on life expectancy, most visibly in terms of deaths caused directly by the virus. However, the pandemic’s wider economic and healthcare impact will also have an impact on life expectancy, which will have the effect of reducing companies’ pension liabilities.

Research generated by the XPS Covid-19 tracker has found that, life expectancy of pension scheme members will be lower than assumed by companies last year. This will reduce the cost of pension promises by 1.5% to 3.5%, depending on the membership of a scheme. Across all UK DB pension schemes, this would mean a £25bn to £60bn in the cost of pensions measured on an accounting basis.

Accounting standards require companies to use best estimate assumptions to determine the value placed on defined benefit pensions promises. The Financial Reporting Council has given particular scrutiny to mortality assumptions, as these can vary significantly between schemes.

Source: XPS research shows pension liabilities in UK company accounts could be overestimated by up to £60bn

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