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Understanding long-term trends more important than seasonal deaths for UK pension schemes’ longevity risk

Understanding long-term trends more important than seasonal deaths for UK pension schemes’ longevity risk

The number of deaths registered over the twelve months prior to the August Bank Holiday weekend 2016 appears to be around 12,000 lower than for the corresponding period in 2014/2015, a reduction of just over 2 percent. Report from Mercer.

Relatively high numbers of deaths among the over-65s were detected in mid-July, coinciding with a notable spell of hot weather. Glyn Bradley, Principal in Mercer’s Innovation, Policy and Research team commented, “The number of death registrations is down, compared to last year. The numbers of deaths varies from year to year, and is particularly sensitive to seasonal diseases like flu. Although there have been flu outbreaks this year, particularly in March, the over 65s don’t appear to have been as badly affected as younger adults. In fact, the only heavy period for over-65 deaths that sticks out statistically was in mid-July, but that coincided with a notable spell of hot weather rather than a flu outbreak.”

Bradley added “Whatever the cause of this year’s mortality, it’s important not to get too bogged down in the short term. When retirement lasts for decades, a flu outbreak or a few weeks’ hot weather doesn’t really matter to a pension scheme in the long-term. Trustees and sponsors of defined benefit pension schemes need to be thinking about the drivers of mortality decades ahead. Will the rise of vaping cut tobacco consumption? Could regenerative medicine improve heart attack survival rates? Could the rise in obesity make a serious dent in improvement rates or is it a bit of a sideshow? These are the kind of issues we are now modelling with clients.”

Andrew Ward, Partner and Head of Longevity Risk Management at Mercer added “The ongoing uncertainty around future longevity is leading an increasing number of trustees and sponsors to investigate ways of managing this risk, and this is now extending to smaller schemes too. In the last couple of months alone, we have helped schemes such as Manweb and Pirelli complete longevity swaps to transfer this risk to insurers and reinsurers in transactions of £1bn and  £600m (totalling both Pirelli schemes) respectively. We expect this trend to continue as schemes mature and seek to lock down risks. As a minimum, schemes should seek to understand the issues involved before potentially looking at the growing range of options to manage the issue.”

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