Pension schemes must not overreact to high short-term UK mortality data when looking to set their long-term mortality assumptions, Aon has warned.

The firm stated that despite the ongoing pandemic, longevity markets had continued to function effectively, with bulk annuities and longevity swap transactions “continuing apace”.

It clarified that whilst people may assume that, with no effective vaccine and some “critical aspects still unknown”, life expectancy must have reduced, this may not the case.

“While there are potential outcomes of this crisis that could reduce life expectancy, including the possible impact of economic recession, there are also potential outcomes that could result in higher life expectancy,” Aon Risk Settlement Group partner and head of demographic horizons, Tim Gordon, explained.

He highlighted increased spending on health and social care, and a potential “hardening” of the UK to future pandemics, as two examples of potential outcomes.

Gordon added: “On top of this, the socio-economic profile of pension schemes means that their liabilities are typically partially insulated from the variations we see in national mortality statistics.

“Accordingly, it would be premature now to make major changes to best estimate longevity assumptions in either direction.

"Indeed, it is reasonable for median best estimate assumptions to remain broadly unchanged.”

The firm also emphasised that the majority of sponsors and trustees have remained “comfortable” proceeding with transactions throughout Covid-19, highlighting that some “agile” schemes had even been able to take advantage of pricing opportunities.

However, Aon Risk Settlement Group head and senior partner, Martin Bird, stressed that now "more than ever", it is important for schemes "to keep their wits about them" when entering a transaction.

“Particular features in the current environment are the need to understand the consequences of different on-risk dates - and the potential for regret risk – as well as ensuring that investment portfolios are adequately stress-tested to guard against any later liquidity problems," he added.

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