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How did the pension fund actuaries get it all so wrong?

The pension fund industry is a very complex monster and one which is proving very difficult to forecast in the short, medium and longer term. Only a few years ago it was revealed that government actuaries had in fact miscalculated, or wrongly estimated, the average lifespan of the UK population. While there was only a relatively small error between the actual figure and the estimates from some time ago, when you multiply this across all pension fund arrangements in the UK and pension fund vehicles, the cost has been enormous.

Inflation has also been a major issue with regards to the forecasting of vital statistics needed to calculate the future liability of pension funds and again this has proven to be a major hurdle for the UK actuaries. Many believe that this miscalculation of both the average lifespan of a UK resident and the rate of inflation prompted the government to introduce new regulations which are very much on the cautious side and have expanded pension fund liabilities and pension fund shortfalls to the detriment of employers.

We are now in a situation where the leading UK companies have a combined pension fund shortfall of well over £100 billion which will be very difficult to cover as the economic downturn continues.

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