DB sponsors could save 'millions' by updating longevity assumptions

Defined benefit (DB) pension scheme sponsors could save “millions” by updating their longevity assumptions to one of the more recent Continuous Mortality Investigation (CMI) models, analysis from Hymans Robertson has suggested.

The research revealed that switching to one of the more recent CMI models could see a "significant" improvement in a scheme’s funding position of nearly 3 per cent of liabilities.

The firm also pointed out that many schemes’ last review of their longevity assumptions having been done before the many demographic changes of the last three years, warning that "the importance of reflecting current views has "never been more important".

Hymans Robertson senior actuarial consultant, Sachin Patel, explained: “It’s important for sponsoring companies and trustees of pension schemes to carry out their own analysis to determine a suitable model calibration.

"Setting a trend assumption using the CMI model isn’t getting any easier, and the default projection now involves a lot more judgement than it has in the past.

“Post-covid longevity assumptions are also highly subjective, especially as the long-term impact of the Covid-19 pandemic on life expectancy is not yet clear.

“So understanding the membership’s profile, particularly with detailed analysis, and comparing the scheme to broader UK and other real-world considerations, is a helpful starting place in informing what an appropriate assumption could be.

“For example, the choice of weighting for 2022 and 2023 population data will have a material impact on the model output, and adopting a greater weighting than the current core parameters could significantly change the positions.”

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