On the go: The coronavirus pandemic is likely to have a very muted impact on the pensions sector, according to a new report emphasising that a reasonable proportion of Covid-19 deaths would have occurred this year anyway.
The paper on future higher-age mortality, produced by the Cass Business School and the Pensions Institute alongside Heriot-Watt University and insurer Prudential, points to the proportionality of deaths at different ages due to the virus and those due to all causes.
It argues that the disease acts as a multiplicative factor on existing mortality trends and that the life expectancy of healthy people will not be drastically changed, as only a small percentage of deaths have so far been people with no pre-existing conditions.
Adopting the worst-case scenario of an uncontrolled pandemic with 500,000 deaths, modelling showed that due to accelerated deaths being concentrated among those with shorter life expectancies, a drastic spike in monthly deaths for a cohort of 75-year-olds would be followed by a dip below the non-pandemic projection of monthly deaths, before the mortality experience reverts to previous assumptions.
Even under this model, life expectancy for the entire cohort only dropped to 13.04 years from 13.14 years if no pandemic had occurred. Survivors would have a life expectancy of 13.45 years.
The smaller the overall tally of Covid-19 deaths, the quicker this spike and dip feature would revert to the norm – leading the academics to conclude that at a best estimate of between 75,000 and 80,000 deaths, little impact is likely to be observed on the life expectancy of survivors. The baseline case would see 7 per cent of all deaths over the next year linked to the disease, with an average of four years of life lost on average.
“We believe that the effect of Covid-19 will be to accelerate the deaths of people who aren’t very well and might have died in the near future anyway,” said Dr David Blake, professor of pension economics at Cass Business School and director at the Pensions Institute.
The study does, however, admit that between 7 and 12 per cent of deaths are people who had the potential to live significantly longer.
The paper has implications for the government, in its weighing up of the economic cost of continued lockdown against the risk to life, but also for pension schemes building their assumptions about member longevity.
“Many of us in the industry are about to start working with datasets that have the pandemic in them,” said Amy Kessler, head of longevity risk transfer at Prudential Retirement.
She said pension providers will need to know how to adjust experience data, whether there will be so-called anti-selection, and the volatility that can be expected in deaths data.
Headlines have focused on the disproportionate impact of Covid-19 on more deprived demographics citing possible increased exposure, and the report confirmed that the worst-off have been hit the hardest by the virus.
However, it also found that deaths for the three most deprived and one least deprived deciles of socio-economic background were proportional with all-cause mortality. Only middle deciles fared comparatively better, perhaps due to better adaptation to lockdown and social distancing.
The report’s authors did suggest that direct and indirect results of the virus, including new organ damage sustained during infection but also lockdown effects such as increased reluctance to visit hospitals for non-Covid-19 services, could have an as-yet unknown impact on future mortality.
