LONDON, 26 February 2021 – Aon plc (NYSE: AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has cautioned against over-stating the negative impact of the pandemic and its aftermath on the longevity assumptions of UK pension schemes.
Tim Gordon, head of Demographic Horizons in Aon’s Risk Settlement Group, said:
“The UK suffered around 73,000 excess deaths in 2020 and the vicious tail end of the second wave in January and February this year has so far resulted in a further 35,000 excess deaths. With this grim toll fresh in our minds, it is all too easy to leap to the conclusion that the outlook for longevity must be overwhelmingly negative.
“But this is not necessarily the case. In a poll at a recent Aon webinar for insurers and reinsurers, around 40% of participants thought the longevity outlook from mid-2021 onwards was broadly the same as before the pandemic, with 30% thinking it was slightly worse and 30% thinking it was better. This is consistent with our understanding of the broad consensus across the insurance industry, that while it is certainly possible that future longevity improvements may stall because of the direct and indirect impacts of COVID-19, there are also potentially positive factors.”
Tim Gordon continued:
“It has been a conundrum for 100 years that recessions can be positive for longevity. This is not a certainty – health and social care spending are critical unknowns – but the negative impact of recession on longevity is not the given that many commentators assume it is.
“There are other factors that may prove positive for longevity. These include bearing down on the thousands of winter flu deaths we saw pre-pandemic – although flu could bounce back with a vengeance in the short term – the improvement of UK systems to deal with future pandemics, and accelerated health benefits from wider application of mRNA vaccines. Harsh as it may sound, we may also have a surviving population that is potentially more robust in the short term. On top of this, high vaccine efficacy and the UK’s speedy vaccine rollout and investment in future vaccine production suggest that the danger of seeing some of the more extreme COVID-19 scenarios has receded.
“Simply put, it is not necessarily the case that the outlook for future longevity has worsened as a result of the pandemic. It will be important to keep this in mind for schemes and sponsors considering funding arrangements and, in particular, when analysing the value for money of bulk annuity or longevity swap transactions.”
Notes to editors
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
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