There will be a modest increase in mortality rates following the COVID-19 pandemic and cost-of-living crisis, potentially slashing UK pension scheme liabilities by up to 2%.
That is according to Lane Clark & Peacock's (LCP) latest Longevity Report, which highlights that, while the financial impact of excess deaths during the pandemic has been modest for most pension schemes so far, the repercussion will be “long term”.
The researchers explain how there are fundamental issues – such as delayed diagnoses for chronic diseases – that indicate the health and social care system could be adversely impacted for several years due to the hangover of the pandemic.
Furthermore, relatively low mortality rates this year could be masked by extremely low levels of flu cases temporarily distorting the underlying figures. When circulating flu levels return to more traditional levels, this may have material impacts on excess deaths.
The report also highlights how the surge in the cost of living forcing more households into fuel poverty could widen life expectancy inequalities.
LCP is now calling on trustees and companies to understand the specific characteristics and experience of their pensions and combine actuarial advice and insights from a wider range of health experts to help manage their schemes.
“As we start ‘living with COVID-19’, the potential longer-term impacts on mortality are more uncertain than ever,” report author Chris Tavener said.
“Analysing emerging data, not only on deaths but also on the precursors of mortality, will be critical for fine-tuning mortality assumptions and making evidence-informed decisions in the future.”
Comparing the level of excess deaths in England before and after the end of the second wave, the report highlights how these continue to affect age groups differently, and have fallen significantly for people of typical pensionable age.
The findings also show that many pension scheme trustees and sponsors are now placing more emphasis on longevity in their overall risk assessments and journey planning.
Despite the uncertainty, longevity risk pricing for longevity swaps and buy-ins/outs is its most competitive levels in recent years, and reinsurers have become more confident in putting through price reductions due to the ongoing impact of COVID-19.
Tavener added: “Combining actuarial advice and insights from a wider range of health experts to help unpack the longer-term impacts is valuable to help trustees and companies manage their pension schemes.”
Image credit: iStock
Author: Chris Seekings