The drop in defined benefit (DB) scheme liabilities caused by Covid-19’s impact on mortality rates has been overshadowed by liability increases triggered by economic factors, according to Lane Clark & Peacock (LCP).

In its latest Longevity Report, LCP estimated that the value of a typical DB scheme’s liabilities might fall by less than 0.25 per cent as a direct result of the deaths of pensioners arising from Covid-19 in 2020.

As total UK DB liabilities are in the region of £2,000bn, the excess deaths in 2020 due to Covid-19 are estimated at reducing liabilities by less than £5bn.

LCP said this was “a fraction” of the total estimated increase in liability values of over £50bn seen since the start of the year as a result of falling markets and ultra-low interest rates, leading the company to predict that the main impact of coronavirus deaths on the funding of DB pensions would be driven more by the economic and social consequences of the pandemic.

The impact of the pandemic will vary between different DB schemes, the report said, as certain groups appear to be more at risk than others.

For example, a scheme is likely to be more affected if it has a higher than average proportion of members who are older, living in urban areas, living in a deprived area, or are from a black, Asian or minority ethnic background.

Looking at the overall picture, the initial mortality rate at the start of 2020 was relatively low, with fewer deaths than the same period in 2019, although by the end of May the mortality rate had risen by around 11 per cent, driven by around 60,000 excess deaths.

However, LCP noted that uncertainty remained regarding the future impact of Covid-19 on the UK population, with listed factors including multiple waves of the pandemic, public health deterioration due to economic decline, potential vaccination effectiveness and the possibility of further similar pandemics.

LCP head of trustee consulting, Michelle Wright, commented: “The global impact of Covid-19 has been far reaching but it appears that so far it has been market movements that have had a far bigger impact on scheme funding than changes to longevity, although this could all change in the coming months and years.”

LCP partner, Chris Tavener, said: “The direct financial impact of pensioners’ deaths in 2020 due to Covid-19 is relatively modest. It is not certain what the long-term impact will be with questions around whether there will be any second waves, if a vaccine is found and how severe a recession will be.

“These factors, particularly the impact of a severe recession, could have far bigger consequences than the immediate impact of Covid-19 in 2020.”

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