Key findings:
- This research, the first analysis of its kind, will change the way DB pension schemes forecast longevity, resulting in more informed liability calculations
- Analysis of 2.5 million living pensioners and 1 million deaths highlights that typical assumptions (based on changes in England & Wales population longevity) do not reflect the longevity trends experienced by DB pension scheme members
- It also shows the pace of longevity change varies between DB schemes and between different groups of DB pensioners
- For example, life expectancy of ’hard pressed’ scheme members is increasing at a faster rate than for ‘comfortable’ members, narrowing the gap in life expectancies
- Applying this new information will mean that many schemes will typically see their liabilities increase by around 1%
- More importantly, this analysis will enable every DB scheme to create bespoke longevity trend assumptions that reflect the diversity in longevity trends amongst their pensioners
The NAPF and Club Vita have today (Thursday) published research which for the first time offers a comprehensive analysis of the difference in life expectancy trends between members of defined benefit (DB) 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.”
Gender |
Life Expectancy trend groups |
Observed change in life expectancy as at age 65, over 2000-2010 |
Expected change in liabilities |
Male |
Hard-pressed |
+2.5 years |
+2.0% |
Making-do |
+2.3 years |
+1.5% |
Comfortable |
+1.9 years |
+0.5% |
Female |
Hard-pressed |
+2.0 years |
+0.5% |
Making-do/Comfortable |
+1.6 years |
+1.0% |
Read the full paper
- ENDS –
For further information or images, please contact:
Eleanor Bennett
NAPF
[email protected] / 0207 601 1718
Lucy Grubb
NAPF
[email protected] / 0207 601 1726
Matthew Whitbread
Hill+Knowlton Strategies
[email protected] / 0207 413 3515
Notes to editors:
The NAPF is the voice of workplace pensions in the UK. We speak for over 1,300 pension schemes that provide pensions for over 17 million people and have more than £900 billion of assets. We also have 400 members from businesses supporting the pensions sector.
We aim to help everyone get more out of their retirement savings. To do this we spread best practice among our members, challenge regulation where it adds more cost than benefit and promote policies that add value for savers.
About Hymans Robertson LLP (www.hymans.co.uk)
Founded in 1921, Hymans Robertson is one of the longest established independent actuarial firms in the UK. We deliver a full range of services including actuarial, investment consulting, enterprise risk management, third-party pensions administration and communications consulting. Our client base includes FTSE 100, FTSE 250, privately owned firms and financial institutions. We’re also recognised leaders in the field of public sector pensions.
About Club Vita
Club Vita is the only company dedicated to providing longevity services to occupational pension schemes.
Longevity is many pension schemes’ biggest unmanaged risk. Failing to understand it results in schemes misstating liabilities by as much as £50m in a £1bn pension scheme. This puts pensions at risk and places undue strain on company finances.
Club Vita’s services are based on harnessing the collective longevity evidence from its members’ schemes. This body of evidence is unique in its size, history, relevance and detail.
Powered by research from the largest team of dedicated longevity experts in the UK, the Club’s approach improves on traditional, outdated models for assessing longevity. This greater clarity enables schemes to take decisions with confidence, whether they are considering funding, liability driven investment strategies or risk transfer options such as buy-in or longevity hedging.
Club Vita was founded by Hymans Robertson in 2008, and has worked with the UK’s biggest pension schemes, enabling them to understand and take control of longevity risk.