Pension funding research conducted by Mercer has revealed that pension schemes have increased their life expectancy assumptions for members by an average of half a year over 2007, equating to an average increase of 2%, or GBP8 billion on the liabilities for the FTSE 350.

The report, which looked at funding positions for FTSE 350 companies, also showed scheme funding levels on an IAS19 basis improving over the first quarter of 2008, with an aggregate FTSE 350 surplus of GBP14 billion compared to a deficit of GBP14 billion as at December 31, 2007.

The ‘buyout’ position remains similar to the position as at December 31, 2007, currently estimated for the FTSE 350 at GBP80 billion. As expected, given the relative market movements, allocations to equity investments are typically down to 57% on average.

However, John Hawkins, principal in financial strategy group at Mercer, warned that recent market turmoil presented data that confused the picture of pension scheme funding. While equity markets have fallen, corporate bond yields have continued to rise, resulting in a widening of the spread between corporate bond yields and gilt yields.

The research also took a snapshot of the mortality assumptions for 30 companies grouped by industry sector. Of those companies, 12 recognized significant improvements in life expectancy for a current pensioner over the previous year. Schemes in the manufacturing sector saw the most notable increase. In one case the increase in life expectancy for males was almost six years.

The data also showed that in a reversal of the current trend two companies have reduced the assumed life expectancy of some of their members. Both have cited mortality investigations to justify their decision.

Mr Hawkins said: The IAS19 figure reflects the increase in corporate bond yields over the period – the consequential liability reduction has more than offset the fall in asset values. The true picture may be less rosy.

On some measures, the yield increase is less significant, and the position is vulnerable to a re-rating of corporate bonds and a reduction in credit spreads as confidence and liquidity recovers.