The UK’s death toll so far from COVID-19 could be double the official figures, but the impact on pension funds is likely to be far less significant than potential changes in long-term mortality rates associated with the virus, consultants have said.
According to analysis by Club Vita, the provider of longevity risk informatics, the actual UK mortality so far from COVID-19 is likely to be around 60,000 – double the official tally.
The company said the discrepancy with figures published by the UK government is being caused by delays and omissions in compiling the totals.
Steven Baxter, head of innovation at Club Vita, said: “Despite the [government] briefings now including both hospital deaths and deaths in the community where the individual has tested positive for COVID-19, under-reporting is still an issue.”
In addition to delays in reporting deaths where the deceased had tested positive, deaths where COVID-19 was a contributory factor could also have been omitted from the figures, according to the company.
Baxter said this is confirmed by data from the Office for National Statistics (ONS) for deaths registered up to 2 May 2020, which also include those where COVID-19 is mentioned “somewhere” on the death certificate.
Club Vita analysis suggests that including these deaths brings the true toll for deaths directly related to COVID-19 to around 40,000 as at that date.
In addition, Baxter said: “Since early April we have also seen unseasonably high levels of deaths which make no mention of COVID-19 – around 3,000 higher each week than usual for this time of year.”
He concluded: “Putting all this together means that the combined direct and indirect loss of life from COVID-19 may now be 60,000 – double the official number.”
Charlie Finch, partner at LCP, said: “It is too early yet to draw firm conclusions on the impact that higher COVID-19 related mortality may have on insurer pricing and pension scheme finances.
However, current projections for potential excess deaths in the UK suggest the impact will not be significant, with the bigger impact being swings in financial markets.”
Stephen Caine, pensions consultant at Willis Towers Watson, said: “The actuarial profession’s mortality committee, the CMI, estimates that the increase in total death numbers in the UK due to the pandemic is likely to have already exceeded 60,000. However, even if the final toll were much worse – for example 300,000 – the impact on the funding level of a defined benefit (DB) scheme, with a membership roughly representative of the UK demographic, may be just 0.5%.”
The impact is smaller than might be expected given the fact that most deaths would be for older members and retirees in such a pension scheme. This would cut short benefit income streams and so reduce pension liabilities, he acknowledged.
According to Caine, the most material effect of COVID-19 for pension schemes will be its long-term impact on future mortality rates, which is, however, harder to gauge.
He said: “Periods of austerity can correlate with a slowdown in life expectancy improvements – for instance, such a slowdown has been taking place since 2011. So if the COVID-19 crisis is followed by a deep recession, we could see a continued slowdown in life expectancy improvement which could take 2% off pension scheme liabilities, but this would emerge over time rather than happen immediately.”
Conversely, Caine also recognised that lifestyle and environmental changes occurring under lockdown – such as minimal use of cars and cleaner air – could be responsible for improving longevity which may offset the recessionary effect.
He concluded: “The big question is where long-term life expectancy is going to: this creates a lot more uncertainty for trustees and sponsors in computing the three-yearly valuation and long-term planning.”