Many firms which continue to operate final salary pension schemes are understating their liabilities by up to 30 per cent, because they employ outdated assumptions on how long staff will live after they retire, a benefits consultancy has warned.

Spence & Partners claims the antiquated systems used to measure liabilities has resulted in a pensions timebomb, The Herald newspaper reports.

Under FRS 17, the controversial pensions accounting standard, longevity assumptions do not have to be disclosed in the accounts and are rarely challenged by auditors, the firm alleges.

Ian Conlon, a Glasgow-based director at Spence, said: “Under FRS 17, key economic assumptions such as interest rate, expected return on assets, salary growth and price inflation are disclosed. But there is no requirement to disclose demographic assumptions such as life expectancy.

“The value placed on the scheme liabilities can be materially affected by the mortality assumptions used.”

He continued: “From experience, it appears that auditors rarely question the demographic assumptions used, particularly in the small/medium sized company sector. It is quite feasible that the auditor would not even know what assumptions were used.”