The National Association of Pension Funds has today published the first ever in-depth analysis of the difference in life expectancy trends between members of defined benefit pension schemes.
The examination of life expectancy undertaken with Hyman Robertson's Club Vita longevity consultants concluded that existing industry assumptions could underestimate the longevity of some scheme members. If funds applied this improved longevity information to their schemes, it was likely that liabilities would typically increase by around 1%, the research found.
Existing trends for longevity are based on the general population rather than scheme members, the report stated.
However, an analysis of 2.5 million living pensioners and 1 million deaths found longevity variation between different groups of DB pensioners.
For example, life expectancy for financially hard-pressed scheme members is increasing at a faster rate than for more well-off savers.
The report found that 'hard pressed' male DB pensioners saw their life expectancy at 65 increase by 2.5 years between 2000 and 2010, while those deemed financially comfortable saw increases of only 1.9 years. This meant the longevity gap between these two groups narrowed over the period.
Similarly, the life expectancy of hard-pressed females increased by 2.0 years compared to 1.6 years for those deemed 'making do' or 'comfortable'.
As a result of this analysis, the NAPF said trustees would be able to better reflect the diversity in longevity trends experienced by their members, based on information from the most relevant DB pensioner population.
Jackie Wells, the head of policy and research at NAPF said improving estimates of life expectancy was vital for pension funds.
'This is because longevity assumptions affect many aspects of the day-to-day management of pension schemes - from estimates of liabilities at a triennial valuation through to using valuation cashflows to set LDI-like strategies and modifying benefit structures,' she said.
However, until now there had been very little information available on how longevity has been changing for DB pensioners as opposed to the population of England and Wales as a whole.
'This project enables schemes to set longevity trend assumptions for DB pensioners based on the experience of DB pensioners. We hope this research becomes a go-to resource and a template for every DB pension scheme to improve its future life expectancy forecasting going forward.'
Steve Hood, longevity consultant at Club Vita and joint author of the report, added the analysis could be used by pension schemes to create bespoke longevity trend assumptions that reflect their membership.
'Improvements in healthcare and changes in smoking habits, diet, lifestyle etc are no doubt contributors to this narrowing.
'Pension schemes with a high proportion of shorter lived pensioners could be embarking on a period of greater increases in life expectancy, and therefore liabilities than anyone has previously thought.'