There will be a modest increase in mortality rates for a number of years, given the indirect impacts of the pandemic on the nation’s general health, pressures on the healthcare system and the cost-of-living crisis, according to LCP’s latest Longevity Report. 

While 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.  There are fundamental issues, such as delayed diagnoses for chronic diseases, that indicate that our health and social care could be adversely impacted for several years due to the hangover of the pandemic, potentially justifying a reduction in life expectancies assumed by pension scheme trustees and sponsors.

As a result of the many unknowns and the differing impacts across population subgroups, LCP are urging scheme trustees and companies to understand the specific characteristics and experience of their scheme and combine actuarial advice and insights from a wider range of health experts to help manage their pension schemes.

Key findings from the report are: 

• Mortality rates for 2022 so far are similar to the pre-pandemic levels in 2019. We speculate that these low mortality rates could be masked by extremely low levels of flu cases temporarily distorting the underlying figures. When circulating flu levels return to more traditional levels this may have material impacts on excess deaths.
• The surge in the cost of living forcing more households into fuel poverty could widen life expectancy inequalities. There is already a wide range of life expectancies in the UK, with those living in more deprived areas having lower life expectancies and experiencing lowing improvements, and the cost of living could increase these inequalities.
• Comparing the level of excess deaths in England before and after the end of the second wave (which the report has taken as 1 June 2021), excess deaths have fallen significantly for older ages groups, of typical pensionable age. The pandemic continues to affect different groups of the population differently, albeit to a lesser extent than for the first wave in April 2020.
• Many pension scheme trustees and sponsors are now placing more emphasis on longevity in their overall risk assessments and journey planning. Despite the uncertainty, longevity risk pricing for longevity swaps and buy-ins/outs is its most competitive levels in recent years - reinsurers have become more confident in putting through price reductions due to the ongoing impact of Covid-19.

The report also highlights that the slowdown in life expectancy improvements means that the government should take stock of its planned rise in the state pension age beginning from 2026. The drop in life expectancies using ONS’ latest projections means that the proposed schedule of pension age rises is too aggressive.  A single state pension age is a crude tool, leading to big variations between different groups in the proportion of their life they can expect to spend drawing a pension.  However, if the government were to deliver on its stated goal of ‘levelling up’, then it would be possible to defend some state pension age increases, albeit on a slower timetable than currently planned.

Chris Tavener, LCP Partner and report author, commented: “As we start ‘living with Covid-19’ the potential longer-term impacts on mortality are more uncertain than ever.  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.  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.”

Dr Jonathan Pearson-Stuttard, Head of Health Analytics at LCP, 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”.