Valuing DB pensions post-pandemic, Can we rely on postcode models.
Andrew Gething
Founder & Managing Director - Helping firms look after consumers with vulnerabilities
The Covid-19 pandemic has affected the mortality of the population and the mortality of defined benefit (DB) schemes. How future mortality has been affected is difficult to understand. The Pension Regulator (TPR) recently warned against hasty reactions to mortality changes, purely on the basis of recent increases in mortality, as reported in Pension Expert.
The medical profession is still trying to understand the risk factors for Covid-19. Age is one risk factor, while high BMI and diabetes are looking like strong candidates, but this is a complex picture we don’t yet understand. Trying to use these factors for making forecasts on DB schemes is, as yet too early, but we will hopefully be able to do this over the coming year.
MorganAsh preliminary analysis of scheme members health just using the risk factors of obesity and diabetes, does show a marked difference across company schemes.
Traditional postcode models correlated postcode to social status to health to mortality. To build up this correlation again will take many years, and it has to be questioned if this is a good approach, now we know the significant change in mortality in the retired generation over the last year. As highlighted in a recent report by Hymans Robertson.
“While COVID-10 has caused a tragic rise in deaths over the past year, the rollout of a number of successful vaccines will gradually improve the situation. However, in terms of the pandemic’s impact on life expectancy, the outlook remains far from clear and it will likely take years before this is fully appreciated.” – Hymans Robertson – Risk Transfer Report 2021.
There is hence more of an argument to use actual health data of scheme members to predict individual mortality for the basis for valuations. This not only meets TPP requirements to be evidence based, but also eliminates the wait to corelate the impact of Covid-19 from social status.
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Portfolio Manager at Sea Point Capital | Founding Partner of Longitude Solutions | Founder & CEO of UCapture
2 年Thanks for sharing?Andrew ??
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3 年Really goodAndrew, thanks for sharing!
Actuary and expert in growing and improving pension businesses.
3 年Hasty changes just dont make sense. The only possible approach now must be to by gather real data about members’ health....particularly for small schemes or members with large liabilities...