Defined benefit (DB) pension scheme liabilities could be reduced by up to 4 per cent based on the latest death registration data from the Office for National Statistics, according to analysis from WTW.

The update from the Office for National Statistics (ONS) saw the number of deaths registered in the year rise to 576,896, which, whilst lower than 2020 or 2021, is otherwise the highest since 1993.

Emphasising the importance of these figures, WTW senior mortality consultant, Stephen Caine, explained that 2022 provides the first full year of mortality data since the lifting of lockdown measures, and so “it’s the first real data point we have in terms of whether things are getting back to the old normal”.

He continued: "In the early part of the year, mortality was similar to what it had been in 2019, the last year before the pandemic. But for a variety of reasons – potentially including pressures in the NHS, a new wave of covid infections, and the summer heatwave – this did not endure.

"After adjusting for how the population is getting bigger and older, the Continuous Mortality Investigation has estimated that mortality over 2022 was 4.8 per cent worse than in 2019, never mind compared with what it would have been if the improvements anticipated before the pandemic had materialised. That is equivalent to around 31,000 extra deaths in the UK as a whole."

Caine also explained that while the direct effect on pension scheme liabilities of more members dying in 2022 than had been expected "will be minimal", there will be a "meaningful effect if what happened in 2022 changes expectations of what mortality rates will be in future years".

Caine went on to explain that the model that schemes use to project future mortality rates is due to be updated in June and, if the Charted Management Institute (CMI) took a business-as-usual approach, the life expectancies generated by the model could be about 10 months lower than under the current version for a typical 65 year-old, reducing pension scheme liabilities by up to 4 per cent.

In practice, however, Caine said that the CMI is likely to assume that the cause of high mortality in 2022 are to some extent short-lived and this assumption might reduce the liability impact to around 2 per cent where trustees stick with the model’s core settings.

Caine emphasised that this is enough to make "significant progress" against funding and de-risking plans, and in some cases could mean that deficit recovery contributions are no longer needed.

“Trustees can depart from this if they have other views, and they need to take care not to double-count where they have allowed for the enduring effects of the pandemic in other ways," he added.

“For many schemes who are well advanced on their long-term journey plans, a more pressing question will be to what extent, and how quickly, the latest mortality developments affect pricing of transactions that pass longevity risk to a third party.”

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