Buck Bond Group


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Was it a blip after all?

Could it be that life expectancy increases are about to take off again?

It is well documented that the improvements in life expectancy seen in the first decade of this century started to reverse in the second decade, with expectancies improving far more slowly – if at all – in most areas and sectors of the UK population. This has impacted the way that actuaries have assessed the future value of pension schemes’ liabilities.

But since around May 2018 things have been on the up, and continue to look good so far this year, with death rates falling. Death rates have gone from tracking at 2% above the previous 10-year average to more than 2% below, as illustrated below.

England & Wales cumulative standardised mortality rate, vs 2009-2018 average

Similarly, the rate of expectancy improvement in the first quarter of 2019 is higher than in any of the corresponding periods from the last 10 years.

Many reasons have been put forward for the slowdown in longevity improvements from 2011 onwards – NHS spending cuts, harsh winters (including the infamous Beast from the East), ineffective flu vaccines, austerity, etc.

However, could it be that the glorious Summer of 2018 was a turning point? The heatwave, Royal wedding, and even England’s performance in the World Cup…?

On 3 October 2018 Theresa May also signalled the “end to austerity,” with her chancellor announcing extra spending. Could this be a factor as well?

Or is it just that the 2018/19 flu was a weaker H1N1 strain, as opposed to the more serious H3N2 strain that has impacted the population in previous years.

Food for thought.

So what does this mean for pension schemes?

Actuaries [advising pension schemes] who have fully recognised the slowdown in mortality improvements may need to consider reigning in those resulting expectations going forward. They may need to pay particular attention to the characteristics of pension scheme members, who typically exhibit better longevity than the general population. Only time will tell when it comes to seeing exactly what shape future trends will take.

Irrespective, trustees and sponsors of pension schemes will be interested to understand the impact of emerging trends on pension scheme funding, settlement pricing and member option terms.