Commenting, Stephen Caine, senior mortality consultant at WTW, said: “2022 provides the first full year of mortality data since the lifting of restrictions on public mixing, so it’s the first real data point we have in terms of whether things are getting back to the old normal. It was a year of two halves. In the early part of the year, mortality was similar to what it had been in 2019, the last year before the pandemic. But for a variety of reasons – potentially including pressures in the NHS, a new wave of covid infections, and the summer heatwave – this did not endure.
After adjusting for how the population is getting bigger and older, the Continuous Mortality Investigation has estimated that mortality over 2022 was 4.8% worse than in 2019(2), never mind compared with what it would have been if the improvements anticipated before the pandemic had materialised. That is equivalent to around 31,000 extra deaths in the UK as a whole.
“For pension schemes, the direct effect on liabilities of more members dying in 2022 than had been expected will be minimal. But there will be a meaningful effect if what happened in 2022 changes expectations of what mortality rates will be in future years.
“The model that schemes use to project future mortality rates is due to be updated in June, with the CMI actively considering how much emphasis to put on 2022 when projecting mortality improvements over the medium term. If the CMI took a business-as-usual approach, the life expectancies generated by the model could be about ten months lower than under the current version for a typical 65 year-old, reducing pension scheme liabilities by up to 4%. In practice, the CMI is likely to assume that the causes of high mortality in 2022 are to some extent short-lived.
This might reduce the liability impact to around 2% where trustees stick with the model’s core settings – enough to make significant progress against funding and de-risking plans, and in some cases this could mean that deficit recovery contributions are no longer needed. Trustees can depart from this if they have other views, and they need to take care not to double-count where they have allowed for the enduring effects of the pandemic in other ways.
“For many schemes who are well advanced on their long-term journey plans, a more pressing question will be to what extent, and how quickly, the latest mortality developments affect pricing of transactions that pass longevity risk to a third party.”
(1). Deaths registered weekly in England and Wales, provisional
(2). CMI mortality monitor – week 52 of 202
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