PSI8.2.4 - Lump Sum Benefits and Communication: Commutation Factors - Mortality Assumptions

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

Actuaries and Life Offices base estimates of life expectancy on mortality tables (see PSI20.1.20-23). Historically, the one that was most commonly used was the a(55) table. This was based on the life experience of persons who bought annuities. This was subsequently replaced by two new tables; the a(90) and PA(90). The a(90) table is based on the mortality of persons buying individual annuities, which they will not buy unless they expect to live for a long time. The PA(90) table is based on the mortality of pensioners in insured schemes. Because of its involuntary nature and the people it covers, the PA(90) table is considered more suitable for pension schemes than the a(90). The use of the a(90) table may occasionally be acceptable for calculating the scheme's funding requirements (see PSI20.1.21) but it should not be used for commutation purposes.

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