It is well publicised that life expectancy in the UK has increased significantly over the past few decades and for many years the majority of actuaries have taken it as read that this trend will continue well into the future. However, in recent years mortality improvements have slowed considerably and, since 2015, have actually started to worsen. Why is this? Does this mean we are all going to die younger? What does this mean for pension schemes?
Mortality experience – England and Wales
When the mortality statistics for 2015 were published in early 2016, they showed an increase in the numbers of deaths since the previous year for the first time in many years. Many commentators put this increase down to short term events, such as an influenza outbreak in the early part of the year.
The 2016 statistics are now available and these show that the number of deaths in the UK has again increased. Does this indicate there are longer term influences that are affecting mortality rates?
Higher health spending throughout the noughties by successive Labour governments is cited as a major reason for the significant improvements seen in mortality over this decade. In more recent times, the much-publicised financial distress of the NHS is widely perceived to be the major contributor behind the worsening mortality in the UK.
However, we cannot solely blame this increase in mortality on the NHS funding crisis. There is also evidence that mortality rates are worsening further afield. For example, in the USA, overall mortality increased from 2014 to 2015 – the first such increase in 20 years. The main causes of this increase have been attributed to the significant rise in deaths from unintentional injuries and liver disease, largely put down to increasing drug and alcohol consumption. Similarly to the UK, the USA has also seen significant increases in deaths from Alzheimer’s.
While, on a broader level, cancer remains the UK’s largest killer a more detailed analysis of the latest ONS data shows that dementia and Alzheimer’s is now the leading cause of death in the UK. Much of this increase has been put down to increased knowledge of the disease, affecting both diagnosis and death reporting, however with people living longer and increasing evidence of a link between diabetes and Alzheimer’s, this trend could be set to continue.
Impact on pension schemes
The Continuous Mortality Investigation (CMI) Bureau mortality improvement tables are commonly used by actuaries for calculating pension scheme liabilities. The CMI’s 2016 tables show lower life expectancies than the 2015 tables, which themselves showed a reduction in life expectancy when compared to both the 2013 and 2014 tables. Therefore, all other factors being equal, schemes adopting the 2016 improvement tables for their mortality assumptions will see a fall in their liabilities.
When the 2015 tables were released, the Pensions Regulator commented that they were comfortable with the 2015 tables being used for funding valuations, however, they did not believe there was evidence to suggest that lower increases will continue. With the trend now continuing for another year, it will be interesting to hear their views on the 2016 tables.
It is too early to say definitively if this trend is set to continue into the future. However, having seen two years of worsening improvements maybe it is time to change the widely held view that we will all continue to live longer. A key assumption for valuing liabilities, mortality is sure to be a major consideration for future funding negotiations in many schemes and, if we are at the beginning of an era of prolonged lower mortality improvements, may serve to improve funding levels.
Chris Mason