Latest mortality statistics could reduce pension liabilities by £20 billion

The latest UK life expectancy statistics, gathered by the Continous Mortality Investigation (CMI) could reduce pension fund liabilities for UK companies by £20 billion.

According to actuaries and consultants Willis Towers Watson, the rate of increase in life expectancy is now slowing down, compared to previous expectations. Willis Towers Watson longevity specialist and director, Stephen Caine, said: “Life expectancy is falling in the sense that people turning 65 in 2019 are now typically expected to live less long in retirement than we used to think they would. A six month reduction in life expectancy at 65 can knock around 2.5% of the liabilities off a typical pension scheme – around £20 billion for FTSE350 scheme sponsors as a whole.”

The CMI model is used by defined benefit pension funds and insurers to help calculate the likely future cost of pensions. According to the CMI’s analysis, mortality rates in 2018 have improved by 0.7% for males and have declined by 0.3% for females. The CMI stated: “There is a growing consensus that the slower mortality improvements observed in the general population since around 2011 represents a new trend rather than a ‘blip’.”

Another consulting firm, Aon, agreed that the new CMI findings will reduce the liabilities of a typical UK pension fund by around 2.5%, with the precise impact depending on the age profile of a scheme’s members and the valuation assumptions in use.