The Continuous Mortality Investigation's (CMI) latest mortality model indicates a small fall in life expectancy among 65-year-olds in England and Wales over the last year.
The CMI_2021 model – which is used by pension schemes and insurers to make assumptions about future mortality rates – produces cohort life expectancies at age 65 that are about two weeks lower, for both males and females, than the model released 12 months ago.
Standardised mortality rates in 2021 were 5% lower than in 2020 on average, however, both years had significantly higher levels than before the pandemic. Mortality in 2021 was 8% higher than in 2019, and mortality in 2020 was 14% higher than in 2019.
While this will affect actuarial calculations, the CMI said that the last two years are unlikely to be indicative of future trends. For this reason, the core version of the latest model places no weight on the data for 2020 and 2021.
“We have to go back to 1940-41 to find a period as unusual as 2020-2021 relative to the preceding five-year average,” explained Cobus Daneel, chair of the CMI's Mortality Projections Committee. “
“The impact of the coronavirus pandemic has meant that we have placed no weight on 2021 mortality experience. We did the same with the 2020 core model after a consultation process and users from the pensions and insurance industry expressed strong support for this temporary change.
“We encourage users to consider adjusting the model’s parameters to reflect their own portfolios and their views of the impact of the pandemic.”
This comes after research by LCP recently found that the healthcare impacts of COVID-19 could reduce longer-term contribution requirements for FTSE 100 companies' pension schemes by around £5bn.
However, due to continued uncertainty around the impact of the pandemic, achieving these cuts would likely require a proactive approach from sponsors, and the continued evolution of contingent asset or contribution mechanisms.
“Life expectancies are among the most material assumptions used to assess pension scheme funding requirements,” said Jonathan Pearson-Stuttard, head of health analytics at LCP.
“This means that for sponsors of schemes at or close to full funding, obtaining clarity in this area is likely to be vital to their pension strategies in the years ahead.”
Image credit: iStock
Author: Chris Seekings