While UK mortality rates are still above pre-pandemic levels and pension schemes are benefitting from improved financial positions, actuaries are urging pension schemes to monitor mortality changing levels and update their predicted cash flows accordingly.

According to the Continuous Mortality Investigation (CMI) recent mortality remains above pre-pandemic levels.

In the UK, there have been around 200,100 more deaths from all causes than expected from the start of the pandemic to 30 June 2023. Of these, 75,600 occurred in 2020, 56,600 in 2021, 39,400 in 2022 and 28,500 in the first half of 2023.

The number of deaths registered for the week 26 of 2023 was 452 higher than if mortality rates had been the same as in week 26 of 2019, equivalent to 5% more deaths than expected, the CMI showed.

The Pensions Regulator (TPR) recently estimated schemes going through a triennial valuation effective between September 2022 and September 2023 would see an aggregate reduction in liability values of around £8bn from mortality alone relative to their previous valuation three years ago.

This, according to Stephen Caine, director of retirement at WTW, could ”cut short” recovery plans for sponsors, leading to “even larger surpluses” and providing the opportunity to bring forward planned de-risking moves towards a long-term funding target.

Caine said: ”The longevity slowdown is therefore pushing schemes further along their long-term journey on the back of the significant gains many made by changes in interest rates in the past 12-18 months as well as the LDI crisis in late 2022. This could precipitate further moves from growth assets to matching assets to lock in gains made. It will also contribute towards more schemes looking towards insurance hedging solutions in what is already a very busy market.”

However, he acknowleded that not all schemes will be in a ”rush to approach a busy insurance market” especially if running the scheme with a surplus provides the scope for members to benefit.

Charles Cowling, chief actuary at Mercer, said that as schemes’ funding positions improve and they are ready for buy-outs, they might also look to reduce risk in their investment strategies.

However, he said that current mortality rates “highlight the problems of matching investment strategies to liability cash flows”.

He explained: “If the cash flows are uncertain, particularly at the longer end, for example due to mortality rates changing, then matching strategies becomes less efficient. Changing mortality rates highlight the limitations of matching investment strategies and why trying to precisely match a cash flow which is 40+ years in the future is not necessarily optimal.”

As a result, Chris Tavener, head of life analytics at LCP, said that pensions schemes should be updating those projections “allowing for the slowdown in mortality improvement, and the higher rate of mortality we’re currently seeing”.

Tavener added that no one knows how long this trend will continue but schemes have to “make a plan and then be able to adapt it if it changes”.

He said: “Trustees don’t want to end up with over funded pension schemes, and likewise companies don’t want to be putting in contributions into those pension schemes to fund deficits that are smaller than they actually are, it’s a balancing act.”

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