While the short-term impact of Covid-19 on liabilities in the Local Government Pension Scheme (LGPS) is likely to be relatively modest, the long-term impact is likely to be greater, according to the Scheme Advisory Board (SAB).
Its annual report published this week said LGPS funds in England and Wales should understand the long-term longevity risk resulting from the pandemic. The number of deaths that have occurred during the pandemic are much greater than expected, with UK deaths rose rapidly over April and May 2020 as the pandemic arrived, and by mid-June total deaths for the year to date were almost 60,000 higher than the most recent five-year average.
While this figure was "relatively stable for most of last summer", a resurgence in Covid-19 deaths occurred in the final few months of the 2020, pushing the deaths figure for the year to around 83,000 higher than is typical, said the SAB. In a typical year, the UK has around 600,00 deaths per year.
Since 2011, life expectancy has gradually increased but at a slower rate than previously. However, 2019 saw the biggest year-on-year improvement in life expectancy since 2011, driven by a lower-than-average number of deaths in the first half of the year, perhaps due to a milder winter and muted impact from the flu.
Short-term impact will be modest
While 2020 and early 2021 are likely to have a significant impact on life expectancy, the short-term impact on LGPS liabilities of the additional Covid-19 deaths over the last year, in isolation, is expected to result in a reduction of "less than 0.5% of liabilities for the majority of funds", said the report. "This is primarily a result of deaths generally being concentrated among older pensioners, who tend to hold a relatively small share of each fund's liabilities," it added.
Most Covid-19 deaths have occurred in the populations at age 65 with the highest numbers of deaths in the 85+ population.
Speaking at the Pensions and Lifetime Savings Association's (PLSA) Local Authority Conference this week, government actuary Jenny Bullen said that while the number of Covid-19 deaths to some extent explains a proportion of the excess deaths, not all the excess deaths are directly related to the pandemic.
"That could be from a combination of not recording the Covid-19 on the death certificate in the initial wave and other reasons such as people not going to the hospital when they needed to in the first wave, and possibly that trend may continue," she said.
The likelihood of risk of dying from Covid-19 at age 90+ is considerably higher than at any other age and the risk is greater at every single age for men than women. Bullen suggested that aside from the obvious risk factors such as age and regional differences, schemes could also look at deprivation such as employment status, education, incomes, health, and crime. Other risk factors that are difficult to look at due to a lack of data are ethnicity, disability status, and population density.
Long-term impact is more uncertain
There is a lot of uncertainty about what happen in the future with longevity trends even with the UK's Covid-19 vaccine rollout being successful, Bullen explained: "The long-term impacts are in relation to whether people are getting the health care that they've needed through the pandemic and whether we will see an increase in cancer deaths as a result of late diagnosis. And equally, whether it is the order in the brain that people who have died, which is just bringing forward the death."
The SAB's report said the long-term effects of the pandemic have the potential to generate a "much more material impact on liabilities".
It added: "Given the volatile experience to date and the early evidence on how different individuals are being impacted by the Covid-19 pandemic, understanding the socio-economic profile and regional concentration of the fund membership becomes important, together with a view on whether general drivers of mortality improvements and the pandemic will affect different groups in different ways.
"These will inform both the current rate of longevity improvement amongst fund members and views on how that will change over the next two or three decades."
