Britain's biggest companies have found a new way to knock a whopping £25bn off their pension deficits.
The dramatic corporate failure of Carillion under the weight of a £587m retirement shortfall has pushed the treatment of pensions back to the top of the public agenda.
Yesterday, Prime Minister Theresa May promised "tough new rules" for company's laden with big retirement black holes.
But according to figures released today by actuarial experts Willis Towers Watson (WTW), the aggregate deficits of the FTSE 350 have fallen by £45bn. Of this, £25bn has been wiped off by firms changing one key assumption – staff will die six months earlier.
"Death rates have been higher than predicted, and this has allowed companies to budget on the basis that pension scheme members won’t live quite as long as they used to expect," said WTW benefits director Nicola Van Dyk.
Britain's 350 largest listed firms now hold assets worth £790.6bn to cover liabilities of £907.5bn. Deficits have also narrowed because long-term interests have risen, something that drives down the calculation of liabilities. And with stock markets buoyant in 2017, asset values have risen.
“Unlike reductions in life expectancy, higher discount rates [effectively interest rates] do not shrink the cash payments that companies anticipate their schemes making to pensioners in future – but they do mean that each £1 of future pension can be given a lower value today," added Van Dyk.
The scale of the pension promises that large employers have entered into means that small technical changes can make a meaningful difference to the pension numbers on their balance sheets.