Defined benefit (DB) scheme liabilities could reduce by as much as 5% as a result of Covid-19, XPS Pensions forecasting reveals.
The consultancy said its Covid-19 impact analytics showed a reduction in liabilities of up to £90bn depending on the severity of short-term and long-term illness.
The tool combines findings from XPS' existing Covid-19 tracker and scheme vulnerability analysis to model effects in five scenarios ranging from minimal disruption to a global depression.
Key risk factors modelled include the ratio of men to women, the proportion of older members, and the number of members living in highly-impacted regions. Ill-health and areas of high deprivation were also analysed.
The analysis also considered the impact of scheme assets, taking into account hedging ratios and the volume of growth assets in order to provide a holistic overview of a scheme's position.
XPS head of demographics Steve Leake said: "Trustees are anxious for information on how Covid-19 will affect their scheme. As the answer relies on so many unknown factors, we believe it is necessary to consider a full range of potential scenarios and we have used an innovative combination of traditional actuarial methods and modern data science techniques to deliver a ground-breaking analysis of the economic and disease impacts on scheme funding over the long term."
The exact long-term health impact of Covid-19 is as yet unknown and will likely take time to definitively prove. One school of thought argues that it will have a "survival of the fittest" effect, whereby the resulting population is healthier and stronger, while the other believes it could give more people longer-term health conditions.
XPS' model aims to provide schemes with an assessment of how vulnerable their members are to contracting the disease and then to suffer serious health impacts.
Longevity analytics head Dan Auton said: "This really is a significant step forward in terms of the level of insight and analysis on the potential impact of Covid-19 that until now has not been available to pension schemes. Trustees can now make accurate decisions based on the specific characteristics of scheme members, as well as the severity of the pandemic.
"This new analysis cuts through the noise and presents a scheme-specific impact. It gives trustees and sponsors a much greater understanding of how their members and the scheme's funding position may be impacted and, with the pandemic likely to continue into 2021, also maps the risks that look set to be a reality for some time to come."
Adviser firm Tideway was told to cease all pension transfer advice business from 3 July 2020, after first being visited by the Financial Conduct Authority (FCA) about its defined benefit (DB) transfer operations in 2017.
An “early warning” tool has been launched by Hymans Robertson to help defined benefit (DB) schemes understand which potential regulatory approach will be more suitable for their current funding strategy.
HM Treasury has announced it will resume the cost control mechanism for public sector pension schemes, noting the concern that the 18-month suspension has caused.
The economic crisis caused by Covid-19 has reinforced The Pensions Regulator’s (TPR) view that its defined benefit (DB) funding principles are “right”, says David Fairs.
Local Government Pension Scheme (LGPS) funds must carry out assessments urgently to understand the impact of the McCloud judgment, says Aon.