Pension schemes have been urged to better understand how their membership will be impacted by shifting trends, after analysis from LCP revealed that ongoing pressures on the NHS are triggering a “significant slowdown” in longevity improvements.

The firm estimated that longevity risk is now around 25 per cent of the investment risk of running a typical defined benefit (DB) pension scheme, noting that while many schemes will have largely hedged their investment risks, longevity remains a significant unhedged risk.

Given this, it emphasised that the tools trustees and sponsors use to analyse and manage this risk need to reflect this.

In particular, it stressed the importance of having a robust assessment of the members’ life expectancy to ensure the scheme has reserves that are sufficient to safely get to its final destination.

It also suggested that those schemes intending to transfer liabilities on to an insurer will want to assess whether the premium provides good value-for-money versus the risks removed.

Commenting on the findings, LCP partner and head of life analytics, Chris Tavener, stated: “After a difficult few years, it is unclear as to how much additional demand pressure the NHS can absorb without adversely affecting more lives and leading to further excess deaths.

“Post pandemic trends point towards a fall in life expectancies of up to 2 per cent being a sensible starting point for many schemes.

"Our view is that combining actuarial modelling expertise with expert judgment from healthcare professionals to have a made to measure assessment is the best way to get a full picture of shifting trends.”

LCP partner and head of longevity and demographic insights, Stuart McDonald, added: “It’s time for schemes to ditch the one size fits all approach to longevity risk and make sure they have an assumption that is made to measure for the demographics of their scheme.

“Trustees need to review how longevity risk fits into their scheme’s overall risk profile and assess what level of analysis is required to make informed decisions. With many schemes seeing large improvements in funding, now is a great time to re-evaluate strategic journey options.

In particular, the research revealed that mortality rates in 2022 were around 4.5 per cent higher than those in 2019, equivalent to around 30,000 additional deaths in the UK, attributing this to multiple waves of Covid-19 and an early and severe 2022/23 flu season.

The research also found that over 7 million people are currently on NHS England waiting lists, with LCP highlighting this as particularly worrying, given early consultation and diagnosis can have a significant impact on morbidity and are likely to affect mortality rates over the longer term.

Indeed, the report suggested that continued pressure on the NHS and fallout from the pandemic may continue to impact life expectancy over the short term.

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