In its latest report into longevity risk, LCP is urging pension schemes to better understand how their membership will be impacted by shifting trends as we enter a new era of mortality. The fallout from the pandemic and ongoing pressures on the NHS are leading to a significant slowdown in longevity improvements. Insight and judgement from a range of experts is key to understand these trends.

In ‘A new era for longevity, insights to tailor your journey’ LCP estimates that longevity risk is now around 25% of the investment risk of running a typical DB pension scheme. This means that longevity is a significant unhedged risk for many schemes, so the tools trustees and sponsors use to analyse and manage this risk need to reflect this.

Many schemes will have largely hedged their investment risks, and so longevity may therefore be one of the few risks remaining that could blow the scheme off course. It is important to have a robust assessment of the members’ life expectancy to ensure the scheme has reserves that are sufficient to safely get to its final destination. If intending to transfer liabilities to an insurer (or alternative provider), then schemes will want to assess whether the premium provides good value-for-money versus the risks removed.

Other key findings in the report include:

• Mortality rates in 2022 were around 4.5% higher than those in 2019, equivalent to around 30,000 additional deaths in the UK. This was driven in part by multiple waves of Covid-19 and an early and severe 2022/23 flu season. As well as leading directly to deaths, these factors also contributed to increased demand pressure on healthcare services.
• LCP’s waiting list tracker shows over 7 million people on NHS England waiting lists. This is worrying, given that early consultation and diagnosis can have a significant impact on morbidity and are likely to affect mortality rates over the longer term.
• Factors affecting mortality over the past year include rising ambulance wait times, long waiting times in A&E, and missed and delayed diagnoses. This highlights the impact that NHS headwinds are having on mortality trends.
• Continued pressure on the NHS and fallout from the pandemic may continue to impact life expectancy over the short term. In the longer-term, drivers of mortality improvement could include addressing health inequalities and avoidable deaths. In England, the avoidable mortality rate for those living in the most deprived areas is almost four times that of those living in the least deprived areas. Advances in health technology in applications such as cancer screening, gene therapies, and AI will keep extending the lives of those that can access them.

Chris Tavener, Partner and Head of Life Analytics at LCP, commented: “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% 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.”

Stuart McDonald, Partner and Head of Longevity and Demographic Insights, 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.

LCP’s growing Health Analytics team means that the firm can provide holistic advice given by a multi-disciplinary team which spans actuaries, epidemiologists, doctors and public health experts.