By Natasha Hill, Senior Consultant at XPS Pensions Group
So why is it that when pension schemes have updated their CMI model to the most recent version, predicting how life expectancy will improve in the future, in recent years pension liabilities have decreased – yet now the new ‘S3’ tables appear to be suggesting the opposite?
Differences in experience of underlying populations
The CMI model (used to predict future improvements to life expectancy) is based on the general population data for England and Wales. This compares to the SAPS tables which are based on only those people fortunate enough to have a defined benefit (DB) pension.
The underlying pensioner data
The underlying SAPS data has changed over time, as different schemes start (or stop) submitting data.
Current mortality rates versus future improvements to life expectancy
It is very easy to get confused between mortality rates and future improvements to life expectancy so it appears that different sources seem to be giving conflicting stories:
The SAPS data shows that mortality rates have decreased (and therefore life expectancy has increased) between the data sets underlying the S2 and S3 tables.
The England and Wales (E&W) data has shown that since around 2011 life expectancy has still increased in most years, but at a slower rate than was previously experienced and therefore projected.
Life expectancies have been improving for pension scheme members at a faster rate than the general population over recent years.
So, what should pension schemes consider doing to adjust for this?
Find out more here:
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