Reflecting current views on future improvements in life expectancy could save Corporate Sponsors millions with their DB Pension Schemes, analysis by Hymans Robertson has found. The leading pensions and financial services consultancy says that updating the longevity assumptions to one of the more recent CMI models could see a significant improvement in a scheme’s funding position of nearly 3% of liabilities. Many schemes’ last review of their longevity assumptions will have been done before the many demographic changes of the last three years.
Commenting on why the mortality assumptions matter for 2024 valuations, Sachin Patel, Senior Actuarial Consultant, Hymans Robertson, said: “Life expectancy, in particular how it might change in the future, will be a key assumption for schemes with a three-yearly funding valuation coming up in 2024, so the importance of reflecting current views has never been more important. Schemes must give attention to their longevity assumptions and update them to one of the more recent CMI models. Depending on their current longevity assumption, this could see a scheme’s funding position improve by nearly 3% of liabilities when using the core parameters.”
“It’s important for sponsoring companies and trustees of pension schemes to carry out their own analysis to determine a suitable model calibration. Setting a trend assumption using the CMI model isn’t getting any easier, and the default projection now involves a lot more judgement than it has in the past. Post-Covid longevity assumptions are also highly subjective, especially as the long-term impact of the Covid-19 pandemic on life expectancy is not yet clear.
“So understanding the membership’s profile, particularly with detailed analysis, and comparing the scheme to broader UK and other real-world considerations, is a helpful starting place in informing what an appropriate assumption could be. For example, the choice of weighting for 2022 and 2023 population data will have a material impact on the model output, and adopting a greater weighting than the current core parameters could significantly change the positions.”
Hymans Robertson has assessed the impact on life expectancy of a variety of different CMI models as at 1 January 2024, and how this may affect upcoming three-yearly valuations when using the core parameterisation. Its paper 2024 valuations – why the mortality assumption matters can be read here.
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