According to industry experts, up to £30bn of UK corporate pension plan liabilities could be wiped out due to one of the biggest drops in life expectancy in a decade.

The actuaries’ latest model saw life expectancy assumptions at retirement age fall 1.9 percent, or six months, compared to the previous year’s model.

Industry analysts believe the forecasts could cut billions of ttotal liabilities of private sector defined benefit pension plans, which stood at £1.28 trillion at the end of September 2022, according to the Office for National Statistics.

“We expect the typical impact of a scheme that changes its longevity assumptions. [from the 2021 model to 2022 model] it will be a reduction in liabilities of around 2 per cent” to £30bn, said Tim Gordon, a partner at Aon, the actuarial consultancy.

Around 10 million people in the UK belong to defined benefit of the private sector, or final salary schemes. These pay a guaranteed pension for as long as members and a surviving spouse live, and use life expectancy models to help calculate the cost of meeting obligations that may extend decades into the future.

Line chart of cumulative change since 2012 (in months) from updates to models used by pension schemes showing that UK projected life expectancy at retirement has been reduced by two years over the last decade

“For a typical defined benefit pension plan, this is likely to be one of the largest year-over-year drops in life expectancy assumptions at retirement age in the last decade,” said Chris Tavener, partner at LCP, the consultants. actuarial

“Looking at the previous four versions of the model, the average change in life expectancy at age 65 from one version to another was a few weeks, although some might have anticipated some of this drop,” he added.

Column chart of impact on life expectancy at retirement age* from yearly changes in model assumptions (months) showing Last update from actuaries saw a six-month drop in projected life expectancy in the United Kingdom

“The degree to which individual schemes will be affected will be influenced by many scheme-specific factors, ranging from how and when they determine their funding assumptions to the amount of longevity risk they have already covered,” said Stephen Caine, director of retirement with Willis Towers Watson, one of the UK’s largest pension consultancies.

The Continuing Mortality Investigation (CMI), supported by the Institute and the College of Actuaries, revises the tables annually to take into account the latest death trends. They are based on national demographic trends and are widely used by pension plans and insurers to price products such as pensions, annuities, and life coverage.

In 2017-18, the WCC revised down life expectancy projections by about 7 months, the biggest drop since the tables were set in 2009.

According to the research, the latest drop was due to high death rates in England and Wales in the second half of 2022.

“While deaths in 2020 and 2021 were clearly abnormally high given the significant number of deaths seen during the first two waves of covid-19, deaths in 2022 were persistently higher than pre-pandemic expectations for much of the year. year,” said Jonathan Hughes, WCC president.

“The WCC view is that these persistently higher than expected deaths may continue as the underlying factors are likely to remain soon.”

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