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COVID-19 – Taking stock of the longevity impact

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COVID 19 Coronavirus

By Stephen Caine | February 25, 2021

In this article we take stock of what we know so far and what 2021 and onwards might hold for pension scheme member longevity in the UK.

On 26 January 2021, the UK became the fifth country to register 100,000 deaths from COVID-19. This grim milestone came in the middle of a second wave which once again saw society as we know it closed for business – hospitality and non-essential retail shut; education delivered in kitchens and bedrooms; the elderly left isolated; healthcare diverted away from less severe or urgent causes. The full implications of the pandemic for society, the economy and longevity will only be known in time.

Measuring COVID-19 mortality

First, it’s worth recognising the difficulty in measuring the impact of COVID-19. Official UK figures count deaths within 28 days of a positive COVID-19 test. This almost certainly underestimated the true number of deaths in Spring 2020 when COVID-19 testing was less than a tenth of current levels meaning many deaths from COVID-19 would have been missed. On the other hand, it could overestimate the impact of some COVID-19 deaths because COVID-19 disproportionately affects the old and frail, many of whom may have unfortunately died of other causes.

A better way of understanding the impact on pension schemes is to look at ‘excess deaths’ – measuring how many ‘extra’ deaths have occurred whether due to COVID-19 or not. The actuarial profession’s Continuous Mortality Investigation (CMI) estimate that excess deaths hit 60,000 by early June when the Government had only recognised 40,000. Conversely, by 29 January 2021, the CMI estimate 99,000 extra deaths had occurred since the start of the pandemic compared with 104,000 COVID-19 deaths under the Government’s measure and 126,000 death registrations where COVID‑19 is mentioned on the death certificate.

Analysis suggests that pension scheme members have been less affected by COVID-19 than the general population.”

Stephen Caine
Senior Mortality Consultant

No measure is perfect, but through any lens COVID-19 has been a tragedy. Nevertheless, pension scheme trustees and sponsors may be surprised to find that liabilities may have reduced by only very little despite more members dying in 2020 and 2021 than anticipated. Part of the reason is that COVID-19 has, as noted above, mainly affected the oldest in society for whom life expectancy is already short. Furthermore, analysis suggests that pension scheme members have been less affected by COVID-19 than the general population.

Impact on wellbeing

What’s likely to be more significant is the long-term impact on the population’s wellbeing and health, and how this affects pension scheme members’ longevity. Various sources suggest we are on the cusp of a mental-health crisis and alcohol death rates are at the highest level since 2001. Treatment of many other health conditions has been severely affected – a Macmillan Cancer Support study found there were 50,000 ‘missing’ cancer diagnoses by October 2020.

At the same time, unemployment is high despite being supressed by the furlough scheme. The UK’s economic output has reduced by 10% since the pandemic started and business closures in the last three months of 2020 were 40% higher than in 2019. The well-established link between financial wellbeing and longevity provides cause for alarm. If the recent slow pace of longevity improvements continues for another decade, pension scheme liabilities could cost 1%-2% less than currently expected – and there is no guarantee that improvements won’t slow even further or that we won’t see life expectancies decrease.

If the recent slow pace of longevity improvements continues for another decade, pension scheme liabilities could cost 1%-2% less than currently expected.

Looking on the brighter side, there are positives we need to recognise. The global response in creating not one but multiple vaccines in such a short space of time has been remarkable. By mid-February 2021, 15 million people in the UK had received a COVID-19 vaccination. Analysis by the excellent COVID-19 Actuaries Response Group predicts that hospital deaths may drop to 20% of mid-January levels by late March thanks to the vaccine.

Further, it is possible increased hygiene awareness, annual flu immunity, healthier habits and reduced air pollution could mean a healthier future. There have also been far fewer deaths registered during the 2020/21 winter relating to non‑COVID causes than is typical for this time of year.

Although the likely longer-term outcome may be weighted towards lower life expectancies due to the pandemic, there is undoubtedly more uncertainty than ever before. This will encourage some schemes to look to remove the risk through insurance, either using a longevity swap or a buy-in/buyout.

The right approach for pension schemes

Schemes with a 2021 valuation will find the latest mortality tables/models will provide a small funding gain relative to those used at the last valuation, based on the longevity improvement slowdown pre-COVID. Coupled with buoyant equity markets, schemes could find themselves closer to buyout than previously expected and now might be the time to reduce or remove the risk.

Figure 1 illustrates the ways in which COVID-19 could impact future longevity insurance pricing due to the numerous competing factors.

For all pension schemes, COVID-19 creates an issue when trying to set assumptions for the future. Do you ignore 2020 when judging current and future life expectancy? That’s the approach most schemes will find themselves taking when using the 2020 iteration of the CMI’s mortality projection model. The core version will predict the future path of mortality by disregarding the unusual experience of 2020.

Equally difficult is to how to analyse your own scheme’s current level of mortality if your mortality data includes deaths from COVID-19 – does the recent scheme experience reflect an appropriate basis for the base level of deaths in the future?

Lastly, how do you build in the impact of the pandemic on future longevity improvements? Is it too early to assume that longevity improvements are going to be negatively affected?

There is no right or wrong answer, and for those schemes with actuarial valuations this year, we anticipate significant discussions on the right approach. A member of our specialist technical mortality group would be happy to share our thoughts and analysis with you to help you understand the options and implications for your scheme.

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Stephen Caine
Senior Mortality Consultant

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