The medium-term impact of the Covid-19 pandemic on pension scheme liabilities remains “difficult to predict” due to the uncertainty of socio-economic factors that may play out over the next five to 10 years, according to Barnett Waddingham.

The consultancy noted that the short-term impact of Covid-related deaths was likely to be small, with an approximate 1 per cent reduction in liabilities.

However, it pointed to several factors that may positively or negatively affect life expectancies that could drive uncertainty in the medium term.

Schemes were urged to consider the medium-term impact on longevity and how this is reflected in the mortality assumptions used to value their liabilities.

The factors that could lead to increased life expectancy included that those that with poor health could have died earlier than expected due to Covid-19 and that the vaccination programme appears to have reduced the number of direct virus deaths.

On the other hand, Barnett Waddingham noted that restrictions being lifted could bring about a rise in Covid-related deaths, while possible vaccine-resistant strains, later diagnoses of certain conditions due to a fall in non-essential health services, long Covid, and the economic impact of the pandemic, could lead to a decline in life expectancy.

Barnett Waddingham added that this uncertainty had influenced views on bulk annuity pricing and the expected period to buyout could be affected as a result.

It noted that the impact of the pandemic on schemes’ terms to buying out will depend on how insurers respond and, in turn, adjust their pricing.

However, any “meaningful change” in pricing may not be immediately obvious, it stated, as insurers digest the emerging data and look to price accordingly.

“In times of heightened uncertainty like this, it should reinforce the level of volatility and financial risk that pension schemes are exposed to,” commented Barnett Waddingham principal and head of longevity risk transactions, Simon Bramwell.

“For many, longevity risk remains mostly unhedged and now should be a time for schemes to assess. With this elevated uncertainty likely to be around for some years to come, this may be a better time than any to remove this unrewarded risk and focus on certainty around reaching the scheme’s endgame.

“The key for those considering a bulk annuity is to monitor the market and ensure their view of pricing is up-to-date and is being assessed relative to a sensible benchmark and that all factors are considered.”

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