Pensions - Articles - Smaller pension scheme mortality assumptions need review


Smaller pension scheme mortality assumptions need review in light of CMI figures, says Mercer

 Mercer is advising smaller pension schemes to review their mortality data in light of new figures published by a research group of the Actuarial Profession, the Continuous Mortality Investigation (CMI). The CMI has published research highlighting the wide variation of mortality experience among members of different pension schemes in the UK
 
 The CMI pensioner data is based on the experience of the UK’s occupational pension schemes and is used to estimate mortality rates. The lower the mortality rates, the longer people are expected to live. This means pension payments are likely to have to be made for a longer time and schemes have to hold more assets to cover this longer period.
 
 The research shows a wide fluctuation in mortality rates both between industry sectors and within each industry sector. For example, overall mortality rates in the financial sector are around 20% less than the rates calculated by schemes in basic industries, such as mining and paper. However, within the financial sector, members receiving pensions of less than £1,500 a year were almost twice as likely to die earlier than pensioners receiving over £25,000 each year. The data suggests that working in the same industry could be less relevant to life expectancy than the level of pension received, which itself is likely to be just a proxy for the socio-economic group an individual belongs to.
 
 Glyn Bradley, Associate at Mercer, explained, "The CMI research highlights the wide variation in life expectancies between different pension schemes. While it is common knowledge that employees in different sectors have different life expectancies overall, there are also variations within an individual sector. In our mortality assessments for clients, we find that it's not unusual for senior managerial employees to live 2-3 years longer than employees with more routine work in the same company. This means that thesepension schemes need to hold about 10% more assets, per pound of pension being paid to the retired higher paid workers, relative to the amount they need to hold to provide a lower paid worker's pension. What is likely to be happening is that, on average, higher paid workers have healthier lifestyles – in the sense that they smoke less, drink less, take more exercise and have access to better healthcare and diets– than lower-paid employees. Of course, some highly paid people lead less healthy lives, and many low paid people lead healthy lives, so these are very broad generalisations but in short: working with your hands won’t kill you, but the booze and fags might."
 
 Mr Bradley added, "Pension schemes need to carefully consider their own membership. A decade ago, it was difficult to set mortality assumptions on a scheme-specific basis. Nowadays, even small schemes can’t afford to ignore the available information and need to take advantage of the modern actuarial techniques available to get a scheme-specific result. Postcode profiling, for example, is now routine for many schemes and easy for them to do, without needing to issue detailed lifestyle and medical questionnaires to members. Medium sized schemes now have access to the kinds of sophisticated modelling that were once the preserve of large insurers. How mortality rates will change in future is still very uncertain, but it is now easier than ever for schemes to get a good idea of where they stand today."
  

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