Fewer Deaths May Mean Increased Pension Liabilities

Lane Clark & Peacock expects UK mortality projections to show longer life expectancies.

The ongoing slowdown in life expectancies improvements in the UK over the last few years reversed course in 2019, which could lead to increased pension liabilities, according to a report from investment consultant Lane Clark & Peacock (LCP).

The firm said that based on the relatively low number of deaths reported so far this year in the UK, it expects mortality projections to show slightly longer life expectancies, therefore increasing pension liabilities.

“Following the highest number of deaths for two decades in 2018, the potential reversal in trend in the first half of 2019 may come as a surprise to some,” Michelle Wright, LCP’s head of trustee consulting, said in a statement. “It further illustrates the importance of understanding the significance of longevity risk to your pension scheme and considering taking action to mitigate against continued uncertainty when it comes to the life expectancies of members.”

However LCP said it is too early to tell whether the data for 2019 signals a rebound for stalled improvements in life expectancies for the average person in England and Wales seen since 2011, or if it is an anomaly.

LCP’s annual longevity report analyzed recent trends in mortality, and the firm said that updating life expectancy projections for mortality trends can have significant financial implications for defined benefit pension plans.

The firm said it expects the next version of the Continuous Mortality Investigation (CMI) projections model, which is slated for publication in 2020, to produce slightly longer life expectancies.

LCP also noted there is a difference between the life expectancies improvements for the average person than it is for the average for pension plan participant. The firm said analysis suggests that the average defined benefit pensioner has experienced higher rates of improvement than those among the general population in recent years, although it added that this will vary based on socio-economic backgrounds.

Other findings from the report include:

  • Liabilities for a typical plan could increase 6% to 8% if major developments in cancer treatment mean the proportion of deaths due to cancer are eradicated over next 20 years.
  • The dominant subtype of flu, and flu vaccine effectiveness, is one of the most important factors in determining the number of winter deaths.
  • Many plans are exposed to higher longevity risk in their retired members than their non-retired members.
  • The Netherlands, Germany, France and the US are also experiencing significant reductions in life expectancy improvements since 2011.

“It is important to understand the demographics of your pension scheme members, such as their socio-economic class, in order to have an informed view of their life expectancy,” said LCP Partner Chris Tavener. “With this in mind, trustees and sponsors should consider moving to the latest model for projections and fine tune it so it is appropriate for their scheme.”


Related Stories:

UK Loses Decade of Improving Life Expectancies

Don’t Get Too Excited over Lower Life Expectancies

Life Expectancies Are Declining Slightly in Private Pension Plans

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