Tim Gordon, head of Demographic Horizons in Aon’s Risk Settlement Group, said: “It is maybe no surprise that we have seen knee-jerk reactions in some quarters implying that there must be a negative impact on future life expectancy from COVID-19.
“The variations in longevity over the past two decades remind us that longevity is hugely uncertain and COVID-19 has not changed that. We are urging pension schemes to take a balanced view of the impact of COVID 19 on best-estimate life expectancy and, in particular, to be wary of assessments that take account of just the negative factors.”
Tim Gordon continued: “Sadly, there are, of course, negative factors, including the potential impact on life expectancy of the economic impact we are likely to see. Even so, it is surprisingly hard to prove such a link using historical UK data.
“But there are also positive factors. For instance, excluding April and May, mortality in 2020 was actually in line with what was expected, continuing a tentative recent trend of improving longevity. Ironically, COVID 19 could itself lead to improved longevity, by driving healthier individual behaviours and from greater attention to healthcare in all its guises. A specific example is the 10,000 to 30,000 flu deaths we had every year before the pandemic. In the future, we may collectively decide that the UK should do better than that and find ways to improve.”
Tim Gordon continued: “On top of this, the results of the Phase III vaccine trials were much better than expected and the UK is at the top of the international league both for securing its vaccine supply and for its distribution. Finally, bear in mind that the starting point for future mortality projections is the historically low levels of longevity improvement seen in the past seven years or so. In other words, we are starting from a low base.”
Martin Bird, senior partner and head of Aon’s Risk Settlement Group, said: “Despite all else that has occurred this year, we are predicting that UK pension scheme risk settlement transactions, that is, bulk annuities and longevity swaps, will reach over £50 billion of hedged liabilities for 2020. At a total £55 billion, 2019 was itself a spectacular doubling of the market.”
Martin Bird continued: “On top of that, the outlook for 2021 is strongly positive, with pension scheme appetite for risk reduction remaining high. The recent volatility has simply underlined the need for risk management and the opportunities available for well-prepared schemes.”
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