Wide fluctuations in mortality between and within sectors have been revealed, prompting calls for schemes to review their assumptions.
New figures published by a research group of the Actuarial Profession, the Continuous Mortality Investigation (CMI) show a wide variation of mortality experience among members of different pension schemes in the UK.
The research found overall mortality rates in the financial sector are around 20 per cent less than the rates calculated by schemes in basic industries, such as mining and paper. But even within the financial sector, members receiving pensions of less than £1,500 a year were almost twice as likely to die earlier than pensioners receiving over £25,000 each year. The data suggests that working in the same industry could be less relevant to life expectancy than the level of pension received, which itself is likely to be just a proxy for the socio-economic group an individual belongs to.
Smaller pension scheme mortality assumptions need review in light of the figures, says Mercer.
Glyn Bradley, associate at Mercer says: “The CMI research highlights the wide variation in life expectancies between different pension schemes. While it is common knowledge that employees in different sectors have different life expectancies overall, there are also variations within an individual sector. In our mortality assessments for clients, we find that it’s not unusual for senior managerial employees to live 2-3 years longer than employees with more routine work in the same company.
“This means that these pension schemes need to hold about 10 per cent more assets, per pound of pension being paid to the retired higher paid workers, relative to the amount they need to hold to provide a lower paid worker’s pension. What is likely to be happening is that, on average, higher paid workers have healthier lifestyles – in the sense that they smoke less, drink less, take more exercise and have access to better healthcare and diets- than lower-paid employees. Of course, some highly paid people lead less healthy lives, and many low paid people lead healthy lives, so these are very broad generalisations but in short: working with your hands won’t kill you, but the booze and fags might.
“Pension schemes need to carefully consider their own membership. A decade ago, it was difficult to set mortality assumptions on a scheme-specific basis. Nowadays, even small schemes can’t afford to ignore the available information and need to take advantage of the modern actuarial techniques available to get a scheme-specific result. Postcode profiling, for example, is now routine for many schemes and easy for them to do, without needing to issue detailed lifestyle and medical questionnaires to members. Medium sized schemes now have access to the kinds of sophisticated modelling that were once the preserve of large insurers. How mortality rates will change in future is still very uncertain, but it is now easier than ever for schemes to get a good idea of where they stand today.”