The latest update to the pensions industry’s leading mortality model has shown an increase in reported life expectancies for retirees for the first time in several years.
The Institute and Faculty of Actuaries (IFoA) published the 2024 update to its Continuous Mortality Investigation (CMI) model today (30 June).
CMI_2024 estimates that cohort life expectancy at age 65 has risen by around three months for males and two weeks for females, when compared with the previous iteration, CMI_2023. This shift could lead to higher liability values for pension schemes that adopt the core version of the model without adjustment, according to the IFoA.
The update noted that this was the first increase since before the Covid-19 pandemic.
The organisation stated that “standardised all-age mortality rates in England and Wales were 4% lower in 2024 than the pre-pandemic average from 2015 to 2019”. However, it noted that “mortality in 2024 was 6% lower than average for ages 75 to 100, but 5% higher for ages 20 to 44.”
Jonathan Harris, mortality expert at WTW, said the effect on individual pension schemes would depend on their “starting point”.
“With pension schemes becoming increasingly mature, the effect on a typical scheme will be to increase liabilities,” Harris said. “Liabilities for a typical scheme should be around 1% higher under CMI_2024 than under CMI_2023.
“However, life expectancies are still lower than under the models that schemes undergoing new actuarial valuations would have used when they last went through this process three years ago, adding to the improvement in funding positions since then.”
He added that “the path forward remains highly uncertain”. “Some schemes that are not planning to buy out imminently are looking to use some surplus to hedge mortality risk so that the financial consequences of this uncertainty become someone else’s problem,” Harris said.
Ben Rees, partner at LCP, said: “Trustees and corporates have become accustomed to seeing successive CMI models reduce life expectancies. For the first time, the new model will lead to a significant increase in liabilities for many schemes if they choose to use the core model ‘out-of-the-box’.”
He added that schemes can still tailor the model to reflect their own long-term assumptions, including potential improvements from emerging treatments such as anti-obesity drugs.
Updating the Continuous Mortality Investigation
The CMI model is widely used in the financial management of defined benefit (DB) schemes, informing funding valuations, corporate accounting, and bulk annuity pricing.
There were two key changes to the 2024 iteration. It now directly incorporates the impact of the pandemic on mortality rates, whereas previous versions sought to smooth through the distortion produced by the pandemic to project underlying mortality improvements. This is achieved through a new “overlay” term that applies from 2020 and reduces each year.
In addition, the model introduces “multiple period terms” to reflect differences in mortality trends across age groups. Recent experience shows that older adults have seen greater improvements, while younger adults continue to experience higher-than-average mortality.