Pension liabilities expected to rise as 2019 sees fewer deaths reported – LCP

Defined benefit pension schemes could see their liabilities rise if the mortality trend of fewer deaths in 2019 continues throughout the year, according to LCP.

So far in 2019 there have been fewer deaths than in recent years, which could impact the CMI’s mortality projections model.

Life expectancy projections can have significant financial implications for running a defined benefit pension scheme.

The last few years have seen a continued slow-down in improvement in life expectancies, reducing the value placed on pension scheme liabilities and improving funding positions. But the experience so far in 2019 appears to buck this trend.

Based on the relatively low number of deaths reported so far this year, LCP expects the next version of the CMI’s mortality projections model, due to be published in 2020, to produce slightly longer life expectancies, so increasing the value of pension scheme liabilities.

LCP believes it is too early to conclude whether data for 2019 implies a jump start to the stalled improvements in life expectancies for the average person in England and Wales seen since 2011.

In addition, the report also found that liabilities for a typical scheme might increase by 6-8 per cent if major developments in cancer treatments mean the proportion of deaths due to cancer are eradicated over next 20 years.

LCP head of trustee consulting, Michelle Wright, said: “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. 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.”

Although improvements to life expectancies for the average person have stalled, the story may be different for pension scheme members. Analysis suggests that the average DB pensioner has experienced higher rates of improvement than the general population in recent years – although this will vary by degree depending on socio-economic backgrounds.

LCP partner Chris Tavener, said: “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. 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.”

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