On the go: Defined benefit schemes’ liabilities may be overstated from 1.5 per cent up to 3.5 per cent following the Covid-19 pandemic, according to pensions consultancy XPS.
The consultancy’s data showed this range would imply a possible reduction in UK company accounting costs of between £25bn and £60bn.
More than 60 companies that reflected the pandemic in their end-December accounts made an average adjustment of 2.5 per cent, according to XPS’s research; this would equate to a £40bn fall in UK liabilities if applied to all schemes.
The analysis considers age, location, health and affluence in key socio-economic characteristics of members.
According to the consultancy, considerations on mortality for pension schemes following the impact from 2020 will need to include the scale of the shock, its duration and what the ‘new normal’ will look like once restrictions lift.
Many schemes have viewed the pandemic year – 2020 – in isolation, XPS said, and have not factored in the long-term consequences of delays to other healthcare treatments such as cancer and dementia.
A higher death rate is expected by the consultancy, as a result of these factors, along with slow economic growth.
In January, Jude Bennett, principal and senior investment consultant at Barnett Waddingham, said DB schemes should use the post-Covid recovery to conduct a thorough postmortem of the effects of 2020’s events on their portfolios and strategies.
Steve Leake, head of demographics at XPS, said: “We cannot just ignore 2020, as the ramifications will last for some time. In my view it is too late to wait to measure the likely impact of the pandemic, which has already had a significant impact on mortality and will continue to do so in the years to come.
“Without consideration of how the pandemic has affected their members, schemes risk overstating their liabilities by as much as 3.5 per cent and ignoring key information when making decisions on risk management and long-term strategy.”
