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Dutch Shell Pension Fund asset value slumps from $27.13 bn to $11.6 bn in just 11 months

THE WALL STREET JOURNAL

U.K. life-span discrepancy

Pension regulations may inflate estimates of worker longevity

WORKERS IN THE U.K. have the longest life spans in the world — at least, according to estimates by actuaries, who measure companies’ pension bills, a recent survey shows.

Yet the Organization for Economic Cooperation and Development’s figures tell a different story, with U.K. average life expectancy lower than that of the U.S. or Switzerland and in line with Germany and the Netherlands.

The actuaries’ high expectancy for the U.K. likely reflects that country’s tough standards for measuring longevity more than British workers’ health, making U.K. corporate retirement-fund liabilities appear 10%-15% larger than those of overseas competitors, according to a survey by pensions consultancy Hewitt Associates.

The survey, which covered 171 company retirement funds in 12 countries, found wide discrepancies between different countries’ predictions of life expectancy — and how these feed through into companies’ retirement liabilities.

“If anything close to current U.K. mortality projections are reasonable for the developed world, other countries may well have an additional 10% to 15% of their liability not being disclosed,” said Hewitt. “Most sponsors in our survey are not focusing on this hidden risk.”

The U.K.’s tougher approach stems from laws that tie workers’ pensions explicitly to inflation, making retirement bills bigger. That has led to companies paying closer attention to their pension costs.

Last month a research note from accountants PricewaterhouseCoopers suggested U.K. companies might be overestimating longevity by a year, thanks to differences between the mortality tables used by the insurance and pensions industries. That difference could amount to £30 billion ($46.89 billion) in the liabilities a fund faces, it said.

Hewitt is also concerned that most companies will face rising retirement bills during 2009 in any case, as they have to make good on pledges to retirees after a roughly $4 trillion plunge in the value of the world’s corporate pension funds, thanks to falling stock markets this year.

The shortfall of the pension fund of the U.K.’s state-owned postal service, the Royal Mail, has swollen steadily in recent years and hit £5.9 billion, by far the largest in the country, at March 31 this year. According to IAS19 accounting standards — a less precise, more short-term calculation — market movements had sent this figure to £4 billion as of the end of September.

Other companies to have been hit include oil major Royal Dutch Shell PLC, which said last week that its Dutch pension fund had slumped from a 180% funding position to just 85% in the past eleven months. The Dutch fund had assets of €19.2 billion ($27.13 billion) at the end of December last year, but said in a statement on Friday that this figure has tumbled 40% since then to about €11.6 billion.

WALL STREET JOURNAL ARTICLE DECEMBER 17, 2008. 5.46 P.M. ET
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