This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
For DB schemes and actuaries at some point the question of the longevity effect of Covid-19 will come up, but can anyone guess what will happen? And should actuaries even be calculating DB liabilities at a time like this, instead of supporting the fight against the disease?
Covid-19 is not just dominating everyone’s life right now, it has clearly also affected the asset side of DB schemes, with markets plunging and yields moving up and down. So it may seem heartless to ask what is happening on the liability side; every human life lost is one too many, and it is in order to save lives that we are all staying at home.
Yet at some point trustees and actuaries will have to look at whether this pandemic has changed the position of DB pension schemes, and how.
If Covid-19 does change liabilities at all – or whether it will on the contrary have a very big impact – can’t be said for sure at the moment, as the pandemic is still ongoing, and many expect things to get worse before they get better, but trustees might want to be aware of the possibility nonetheless – otherwise they run the risk of focusing too much on one side and being taken by surprise once more.
“Clients are always talking about the fact the assets are down. One of the things I’m obliged to say to them is that some of the pensioners will die, and that will ease the funding position,” says Hugh Nolan, a director at trustee firm Dalriada.
Whether that is actually the case, however, depends on the scheme and whether the pandemic can be controlled. “If we have 20,000 deaths in the population that’s not a dramatic impact on schemes; if we have a worst case of 500,000 deaths that would be a different situation.”
But he suggests that the worst case is not likely given the response to the pandemic. The Imperial College Covid-19 Response Team estimates that across 11 European countries, social distancing and lockdown measures have saved 59,000 lives to the end of March.
Nolan assumes that Covid-19 will be a “shock to the system” with a short-term effect, but one that does not stretch into the future, especially as a vaccine is being worked on, even if this might only be available in 18 months.
Will a reduction in other causes of death balance out losses to Covid-19?
Just as no one knows for certain how many will be taken by the virus, it is also not clear if fewer people will be dying from other causes due to the current lockdown measures, for example from car accidents.
The latest ONS figures on registered deaths between 28 December 2019 and 20 March 2020 show 10,645 people died in that period, slightly more than the five-year average. At that date, just 103 were related to Covid-19. Deaths due to flu and pneumonia were down during the week of 16 March, at 18% of all deaths compared to an average of 20%.
“It’s much harder to injure yourself in front of the TV... That means if anything that this year’s mortality rates will cancel each other out unless we have a big hit from coronavirus,” observes Nolan.
It is also possible, for example, that while there are more deaths this year, there could be fewer in coming years because pollution levels are down due to the lockdown, he says, as the effect of pollution on humans is cumulative.
On the other hand, the economic downturn could lead to more deprivation and potentially deaths related to the financial and emotional stress people are coming under, he says. Overall, however, “my best guess is, it’s going to be just a minor variation” in terms of statistics.
For others, it is too early to say how big an imprint on longevity figures the pandemic will leave. Tim Gordon, a partner at Aon, says there is currently a range of views, but it’s still too soon to call.
“More importantly, in two to three weeks’ time, we will have a much better idea of how effective the measures the UK is taking to suppress Covid-19 will have been,” he adds.
“If there is a comparatively bright spot in this situation, it’s that most pension schemes don’t have a pressing need to determine this until their next funding valuation. The exceptions are those currently going to the longevity insurance and bulk annuity markets, for which they should definitely obtain expert advice,” notes Gordon.
Charles Cowling, chief actuary at Mercer, has a similar view. “We will look at factoring it into our longevity assumptions as and when there is more information to do that,” he says.
Could actuaries help fight the disease?
But given the urgency of a response to the pandemic, should actuaries work on healthcare statistics rather than pension schemes? How essential are triennial valuations, which by definition only provide a snapshot in time and could – as will be the case for any that were agreed in February – be out of date a week later?
Cowling thinks that actuaries bring a particular set of skills and insights in terms of modelling and assessing data “that means we can help”, and indeed the Covid-19 Actuaries Response Group is trying to do just that.
It is calling on actuaries to offer their time and skills to help save lives, having started discussions with government agencies. The group cites past crises where actuaries played an important role, including in WW2, the creation of the welfare state and the global financial crisis. The group is asking anyone who can volunteer at least 25% of their time to write to c19actuarialresponse.action@gmail.com.
What’s your view on the impact of Covid-19 on liabilities?
