The coronavirus pandemic could reduce the liabilities of define benefit (DB) pension schemes in the UK by up to £90bn, forecasts by the XPS Pensions Group suggest.
The pension consultancy said that the long-term impact of COVID-19 on life expectancy could cut liabilities by as much as 5%.
In some scenarios, the long-term economic impact of coronavirus on life expectancy could be 50% higher than the short-term impact of the pandemic.
The findings derive from XPS' newly-launched COVID-19 Impact Analytics, which provides UK pension schemes with a holistic view of the virus.
“This new analysis cuts through the noise and presents a scheme-specific impact,” said Dan Auton, longevity analytics head at XPS
“It gives trustees and sponsors a much greater understanding of how their members and the scheme’s funding position may be impacted – with the pandemic likely to continue into 2021 – and also maps the risks that look set to be a reality for some time to come.”
The new analysis combines the findings of XPS' COVID-19 Tracker, which considers the impact of the virus on different population groups, and its Scheme Vulnerability Analysis, which looks at individual pension schemes.
Pension schemes can be modelled against five different scenarios, ranging from minimal disruption to a global depression, with the service also considering key risk factors that could further impact schemes.
These include the ratio of males to females and the proportion of members at older ages, living in highly impacted regions, in ill-health or living in areas of high deprivation.
In every scenario, the impact on a scheme’s investments are considered alongside changes in liabilities so that trustees and sponsors can consider an integrated view of the full range of risks a scheme faces due to the pandemic.
“We believe it is necessary to consider a full range of potential scenarios,” said Steve Leake, XPS head of demographics.
“We have used an innovative combination of traditional actuarial methods and modern data science techniques to deliver a ground-breaking analysis of the economic and disease impacts on scheme funding over the long term.”
Author: Chris Seekings
Image credit: iStock