A turning of the tide?

It’s a strange life sometimes, being an actuary.

Headlines were grabbed last week by the news that the latest analysis of death rates has wiped billions off the pension deficits of UK plc: cue rejoicing at the end of the pension crisis, and criticism of the gloomy actuaries who, it seems, had overplayed how long we all might live.

But is it fair?

First of all, we need to stop and think about what has really happened. Deficits are down, UK plc might save some money, because people died.

Many of those people died because the flu jab in 2015/16 was not as effective as it should have been. The flu mutated and (it turned out) the UK had stocked the wrong jab. 

Part of the change stems from the observation (in the 2011 census) that the UK has fewer older pensioners than would be expected. The reasons for that are less clear, though some commentators lay blame at least partly on the funding of healthcare and elder care in the UK.

Are those really a cause for any celebration?

Is this “good news” even real?

Contrary to what you might think from those headlines, the 2016 study did show an improvement in life expectancy – it just wasn’t as much as expected, and it wasn’t enough to offset all those extra deaths we had in 2015.

What’s more, the figures in the headlines are based on the general population, not just those who are in pension schemes. The body that produced the study (the Continuous Mortality Investigation or CMI) also carries out analysis on deaths of pension scheme members. There are various reasons to do with the data that mean the CMI has not focussed on this particular analysis in its headline results, but the figures are there if you read their full study.

Indeed, if you look at that full study, it turns out that pension scheme members may be living longer after all. In fact, over the past five years, mortality rates for pension scheme members could have improved by around 2% more than the general population.

The CMI don’t place huge confidence on those estimates (due to the data) – but could the real story here be that those in pension schemes are living longer, while those without a pension are dying sooner than expected?

Even if it is real, will it last?

We have had a run now of studies that have shown slower than expected improvements in life expectancy. It does seem, as the CMI say, that there could be a short- or medium-term trend at play here.

But what of the longer term? We work with RMS to look at scenarios for future improvements in life expectancy. RMS base their scenarios on underlying drivers of mortality that are much easier to relate to than some of the esoteric numbers bandied around. 

Some of the drivers are very much “here and now” factors on which we can all have a view – things such as lifestyle, healthcare interventions, health environment.

There are suggestions that part of the slowdown observed by the CMI may be down to glitches in healthcare interventions – flu jabs and elder care that might not have worked as well as they could. It doesn’t take much to see that small improvements in those interventions – better flu jabs, for instance – could have meant fewer people died, could have meant that life expectancies would be much improved from what today’s estimates show.

Some of the other drivers considered by RMS might be harder for you or me to express a considered view on (telomere shortening, perhaps), but they are active areas of research that could transform our expectations of how long we might live. If, as a species, as a country, we can harness those drivers then the effects they have on life expectancy could dwarf what we’ve seen to date. Is last week’s news the turning of the tide – or just the waters drawing back before a bigger wave comes through?

How significant is it really?

If you read the headlines, the numbers are big. Mercer estimates that the new study could reduce the pension scheme deficit of the FTSE 350 by around ￡28bn. That is a very big number, no bones about it. 

But all numbers around UK pension schemes are big: the pension liabilities of the FTSE 350 added up to about ￡857bn at the end of December 2016. The change in markets since the EU Referendum in June 2016 has had a much more significant effect on pension funding – adding around ￡70bn to the FTSE 350 pension liabilities in the month of August 2016 alone.

Let’s be clear, a ￡28bn reduction in pension liabilities will help UK plc – but the financial environment has been, and remains for now, a much bigger concern for pension scheme funding.

It is rare for actuaries to bring good news to pension scheme trustees and sponsors. This is good news, in that context, but it does not mean that longevity risk has gone away. We may find out, when fuller data is available, if what we are seeing could just be a split between the pension “haves” and “have nots”. Bigger trends at play could easily make this year’s reports seem no more than a blip.

Is this good news for society? Absolutely not. To celebrate it is to celebrate deaths that may have been avoidable. If we set our “pension hats” aside, the real story, the real question, here is how we improve our healthcare to stop 2015’s experience being repeated.