Life - Articles - Study of life expectancy in DB scheme members launched


 The NAPF and Club Vita have published research which for the first time offers a comprehensive analysis of the difference in life expectancy trends between members of defined benefit pension schemes. The result of three years’ of work, it will change the way DB schemes forecast future changes in longevity and enable them to make much better informed predictions going forward.

 The analysis of 2.5m living pensioners and 1m deaths revealed two key findings. First, longevity trends for DB pensioners are different to those experienced by the England and Wales population (the basis for most longevity projections). Second, the pace of longevity increases varies significantly within DB schemes and for different groups of DB pension scheme members.

 As a result of this analysis, trustees will be able to reflect the diversity in longevity trends experienced by their members when setting their longevity assumptions, based on information from the most relevant population, that of DB pensioners.

 ‘Hard pressed’ male DB pensioners saw their life expectancy at 65 increase by 2.5 years between 2000 and 2010. In contrast, ‘comfortable’ male pensioners saw increases of only 1.9 years. This meant that the longevity gap between these two groups narrowed over the period.

 A similar picture emerges for female DB pensioners, with life expectancy for the ‘hard pressed’ increasing by 2.0 years compared to 1.6 years for the ‘making do’ / ‘comfortable’.

 Jackie Wells, Head of Policy and Research, NAPF, said:

 “Future change in life expectancy is one of the great uncertainties for pension schemes, but it’s a really important assumption. This is because longevity assumptions affect many aspects of the day to day management of pension schemes – from estimates of liabilities at a triennial valuation through to using valuation cashflows to set LDI-like strategies and modifying benefit structures. Ultimately, the decision that pension schemes make on the removal of risk - perhaps via longevity swap or buy-in/out - is highly dependent on their view of how longevity will change in the future.

 “However, until now there has been very little information available on how longevity has been changing for DB pensioners, which as this research shows, experience different trends to the population as a whole. The research also shows that different segments of the DB population experience different trends in longevity. We now have a much greater understanding of these historic changes.

 “This project enables schemes to set longevity trend assumptions for DB pensioners based on the experience of DB pensioners. We hope this research becomes a go-to resource and a template for every DB pension scheme to improve its future life expectancy forecasting going forward.”

 Steve Hood, longevity consultant at Club Vita and joint author of the report said: “Never before have we been able to look in such depth and breadth across the defined benefit landscape in the UK.

 “For example, ’hard pressed’ DB pensioners are seeing life expectancy improve at a higher rate than the ‘comfortable’ (see table below). Improvements in healthcare and changes in smoking habits, diet, lifestyle etc are no doubt contributors to this narrowing. Pension schemes with a high proportion of shorter lived pensioners could be embarking on a period of greater increases in life expectancy, and therefore liabilities than anyone has previously thought.

 “There is no such thing as a typical scheme. By providing a model that requires only deprivation and pension amount, both readily available quantities, schemes can now create bespoke longevity trend assumptions that reflect their unique membership profile.”

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