Aon has commented on the new Continuous Mortality Investigation (CMI) model, published, noting that lower levels of mortality improvement in England & Wales have continued for another year. Aon estimates that using the new model would reduce a pension scheme’s liabilities by between 0.5% and 1%, compared with the previous version of the model (CMI_2016). |
The new model, ‘CMI_2017’ is based on data to the end of 2017, and reflects lower than expected improvements in national mortality over the last six years. As a result, the new model typically produces lower life expectancies, and hence lower liability values compared with previous versions. Matthew Fletcher, senior longevity consultant at Aon, said: “The post-2011 trend of lower improvements continued through 2017. It is no longer credible to claim that this is a blip – longevity specialists who have found reasons to treat each new year of heavy mortality data as somehow a ‘one-off’ may now have some difficult explaining to do. “The longevity markets have also now recognised that the post-2011 experience was not a ‘blip’ and are reflecting more recent trends. But we expect that the 2017 data – in combination with the surprisingly heavy mortality data for 2018 so far – will continue to place further downwards pressure on longevity reinsurance prices and have a positive impact on bulk annuity and longevity swap premiums.” Matthew Fletcher continued: “While mortality improvements for pension scheme members have also fallen broadly in line, our analysis at Aon suggests that they have not fallen to the same level as for the general population. All else being equal, simply being a member of a defined benefit pension scheme has positive life expectancy implications! “Trustees and sponsors need to consider carefully how to adjust the CMI model to obtain mortality improvements assumptions that are appropriate for their pension scheme. It is important that this adjustment is based on data and sound principles. At Aon, we have developed a robust methodology that takes explicit account of each scheme’s socio-economic profile, while automatically remaining consistent with the pattern of improvements observed nationally.” |
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