Pension scheme labilities could fall by as much as 2 per cent amid a continued increase in mortality rates, as a result of the indirect impact of the pandemic on the nation’s health and the cost-of-living crisis, according to analysis from LCP.

LCP’s longevity report suggested that there will be a “modest increase” in mortality rates for a number of years, explaining that whilst the absolute financial impact of the number of excess deaths over 2020 and 2021 has been modest for most pension schemes so far, the repercussion of the pandemic will be long term.

In particular, LCP highlighted a number of fundamental issues, such as delayed diagnoses for chronic diseases, that indicate that the health and social care could be adversely impacted for several years due to the hangover of the pandemic.

LCP also clarified that whilst mortality rates for 2022 are so far similar to pre-pandemic levels in 2019, these low mortality rates could masked by extremely low levels of flu cases temporarily distorting the underlying figures, warning that it could have a "material impact" when circulating flu levels return to more traditional levels.

In addition to this, it suggested that the surge in the cost of living could force more households into fuel poverty, in turn widening life expectancy inequalities.

As a result of the ongoing uncertainty and the differing impacts, LCP urged pension scheme trustees and companies to understand the specific characteristics and experience of their scheme.

The consultancy also emphasised the need to combine actuarial advice and insights from a wider range of health experts to help manage their pension schemes, and understand how mortality trends might affect their scheme membership.

Indeed, LCP partner and report author, Chris Tavener, warned that "the potential longer-term impacts on mortality are more uncertain than ever", calling on pension trustees to take action to understand the impact on their scheme.

“Analysing emerging data, not only on deaths but also on the precursors of mortality, will be critical for fine-tuning mortality assumptions and making evidence-informed decisions in the future," he continued.

“Combining actuarial advice and insights from a wider range of health experts to help unpack the longer-term impacts is valuable to help trustees and companies manage their pension schemes.”

Pension scheme trustees and sponsors were also urged to place more emphasis on longevity in their overall risk assessments and journey planning, as LCP noted that, despite uncertainty, longevity risk pricing for longevity swaps and buy-ins and buyouts is its most competitive levels in recent years.

This, according to the firm, was a result of reinsurers becoming more confident in putting through price reductions due to the ongoing impact of Covid-19, with some making reductions of up to 2 per cent in their longevity swap pricing.

The report also considered the impact of the changing longevity expectations on the state pension, suggesting that the government should re-evaluate its planned rise in the state pension age beginning from 2026.

The report stated that the current schedule was "extremely aggressive" in light of the slowdown in life expectancy improvements, arguing that the increases should be deferred "for decades", even before allowing for the impact of the pandemic.

It also argued that this is "acutely true" for the most deprived groups, suggesting that a move to 68 could "just about" be justified in the 2040s, but only for the least deprived 10 per cent of the population.

However, LCP acknowledged that it would be possible to defend some state pension age increases, albeit on a slower timetable than currently planned, if the government were to deliver on its goal of ‘levelling up’ to help address current inequalities.

LCP head of health analytics, Dr Jonathan Pearson-Stuttard, added: “The impact of the cost-of-living crisis will be compounded by the pressure that is already growing on the NHS post-pandemic alongside the economic and social impacts of the Covid-19 impact.

“People are waiting longer before accessing services, are having to wait longer for operations and may even face delays in getting treatment in an emergency.

“Our research shows these pressures will also be most sharply felt by those most in need. A targeted and proportionate effort will be needed to make sure that these twin crises do not combine to inflict a lasting legacy on the life expectancy of the most deprived populations."

Share Story: