On the go: If Covid-19 is confined to the two waves already registered, and the vaccination rollout programme is successful, the pandemic’s effect on mortality rates is likely to be marginal, new research from LCP has revealed.
In a report published on Monday, the consultancy modelled five scenarios based on England and Wales mortality rates, with the most devastating case resulting in a hit to defined benefit scheme liabilities of £67bn (or 4 per cent).
This scenario assumes that the pandemic is unsuccessfully managed, which, combined with a significant economic downturn, has severe repercussions in the long term and results in 60,000 additional deaths in England and Wales every year.
The mildest impact on schemes would be if the pandemic is confined to the two waves already experienced, with the vaccine programme making Covid-19 a manageable disease. This leads to a shortening of life expectancy by one month at 65 and a £4bn reduction in DB liabilities.
On the other hand, there could be a positive outcome for pension funds — with life expectancy increasing by four months at age 65 and a rise of £21bn in DB liabilities — if lockdown leads to less air pollution, the society has a greater focus on holistic health, and there is increased funding for the NHS and valuable healthcare ramifications from the pandemic.
LCP is urging trustees and sponsors to understand the make-up of their scheme membership and how they could be impacted by the crisis, as part of a mortality assumptions review used to manage their schemes.
This is especially important since the latest 2020 CMI model gives pension funds the flexibility to decide how relevant 2020 mortality numbers are for the individual scheme, the consultancy stated.
According to Chris Tavener, report author and partner at LCP, the pandemic “has introduced more uncertainty, and trying to understand the long-term impact of Covid-19 is challenging”.
“What is clear is that in order for there to be a significant reduction in pension scheme liabilities we would have to assume that the pandemic will leave an everlasting hangover, with mortality rates higher than previously assumed for many, many years,” he said.
“With the vaccine programme well under way, we hope the long-term mortality implications of the pandemic are modest.”
